Light at the end of the tunnel for US?

Figures shows that July existing home sales has increased 3.1% from that in June, the first time since February to go above 5 million units. This shows improvement from the steep decline from 2006 to 2007. New home sales was up 2.4% comparatively. Inventory of unsold homes declined for the second month in a row.

The bigger decrease in new home inventory is the first stage of recovery which shows that the US housing market has shown some light at the end of the tunnel.

But, it is still believed that the US housing market will stagger at the current situation for quite some time and will not see a quick re-bounce mainly due to 4 reasons. First, there is still the large second hand home inventory. Second, homes taken over due to foreclosure added more weight on the supply side. Third, credit environment continues to tighten and high mortgage rate gives a hit to demand. Fourth, employment continues to weaken, personal income and expenditure slowing down.

Further drop in interest rate by the FED will not have much effect on the US housing market but will only aid inflation. At the same time, FOMC meeting at the beginning have already shown signs that the FED may increase interest rates. However with falling crude oil price and the strengthening of the US dollar, the possibility of the FED increasing interest rate this year is greatly reduced.

At the beginning of last year when the sub-prime started to show problems in the US, it has worsen into a credit crisis towards the second half of the year. The credit crisis has also spread further into the various economy segments which caused a financial turmoil and becomes a major concern for the US economy. Economic growth was pulled down by the housing market problems and 4Q of 2007 shown negative growth.

To help stimulate the economy, the FED has already decreased the interest rate from 5.25% to 2%. But mortgage rates continues to rise above before the FED start to cut interest rate. The high mortgage rate has caused the number of applicants for mortgages to decrease.

A bottom is expected by around the mid of 2009 for the US housing market.

Latest Updates
3 September 2008

• Orders to U.S. factories rose by a larger-than-expected amount in July as demand for commercial aircraft, heavy machinery and iron and steel all posted solid gains.
  
  The Commerce Department reported Wednesday that new orders increased by 1.3 percent in July, much stronger than the 0.8 percent increase economists had been expecting. The July advance follows an even bigger 2.1 percent increase in June and represents the fifth straight rise in orders.
  

29 August 2008

• The U.S. dollar rallied against a currency basket Friday, on track for its best monthly gain in nearly 16 years, boosted by a batch of data showing a far more stable growth path for the United States than the rest of the world.
  
  U.S. consumer spending slowed in July, but this was more than offset by a report showing business activity in the U.S. Midwest expanded at a more robust rate than expected, fueling a round of dollar buying.
  
• U.S. consumer confidence rose to its highest in five months in August, posting an unexpectedly large recovery from depressed levels with the help of moderating energy prices, a survey released Friday showed.
  
  The Reuters/University of Michigan Surveys of Consumers said its final index of confidence for August rose to 63.0 -- its highest since 69.5 in March. It was up from 61.2 in July and mid-August's preliminary reading of 61.7.
  
  Economists had expected a reading of 62.0, according to the median of their forecasts in a Reuters poll. The 64 forecasts in the survey ranged from 60.5 to 64.0.
  

28 August 2008

• US GDP increased at a 3.3 percent annual rate in the April-June quarter, much better than the government's initial estimate of a 1.9 percent pace and exceeded economists' expectations for a 2.7 percent growth rate.
• Initial claims for state unemployment insurance benefits declined to a seasonally adjusted 425,000 in the week ended Aug 23 from a revised 435,000 the prior week, the Labor Department said. It was the lowest reading since the week of July 19.

27 August 2008

• New orders for long-lasting U.S. manufactured goods jumped a surprising 1.3 percent in July as businesses ramped up spending plans and demand for a wide array of items rose.
• Seasonally adjusted index of mortgage applications which includes both purchase and refinance loans, for the week ended Aug. 22 increased 0.5 percent to 421.6.
• Freddie Mac grew its portfolio to record last quarter, nearly doubling net interest income to $1.5 billion as its spread between funding costs and mortgage assets widened.

25 August 2008

• Freddie Mac easily sold $2 billion of debt on Monday, reassuring investors that it and rival Fannie Mae can fund operations without a government takeover.