Pending Home Sales Index Points to Continued Weakness in Home Sales
The Fannie and Freddie rescue has resulted in lower mortgage rates and improved housing affordability. The 30-year fixed rate mortgage is down about 40-50 bps after the takeover of Fannie and Freddie but the unemployment rate just shot up to 6.1% in August, the highest in five years. In sum, the housing market should experience some benefits from lower costs of borrowing but the exceptionally weak employment conditions will restrain a rapid turnaround. Therefore, the drop in the Pending Home Sales Index (PHSI) in July (86.5 vs. 89.4 in June, 84.5 in May) is not entirely surprising. The largest drop in the PHSI was in the West (-10.6%), followed by the Northeast (-7.5%). The PHSI increased in Midwest (+2.8%) but held steady in the South during July. The PHSI, which represents contracts pending prior to actual closing of sales, conveys that sales of homes probably dropped in the August/September period. Sales of existing homes have moved between 4.85 million units and 5.06 million units for the past ten months.
Small Businesses Optimism Index Shows Marginal Improvement
The August survey results for the National Federation of Independent Business (NFIB) points to an insignificant improvement in outlook of economic conditions. The Optimism Index rose to 91.1 in August from 88.2 in the prior month. The August is a pickup from a record low mark in July.
The small increase in the number of employers planning to raise employment is the main reason for a rebound of the index (see chart 3). However, tighter credit conditions are reported by more respondents compared with the July response and there was a small increase (23 vs. 21 in July) in firms planning to raise capital expenditures in the near term.
