Mixed economic data and tame inflation figures were favorable for the mortgage markets this week. Retail Sales unexpectedly tumbled in May, down 1.2%, the biggest drop in eight months. The Empire State manufacturing survey general business index showed an 11th consecutive month of growth. May Building Permits were down 5.9%, and Housing Starts fell 10%. Mortgage Applications jumped to a five-month high. Initial Jobless Claims were up 12,000 from the previous week, and continuing claims also rose, while the Unemployment Rate fell in 37 states. Gold prices rallied to a record high of $1,260.20 an ounce on Friday, rising nearly 15% since the end of 2009. Unable to determine if economic growth is for real, or if government stimulus is delaying the inevitable “double dip”, investors remain content with the relative safety of US treasuries including mortgage-backed securities. The low inflation data released this week means there is little pressure on the Fed to begin raising the benchmark lending rate. The Producer Price Index was down 0.3%. Core PPI, excluding food and energy costs, was up only 0.2%. The Consumer Price Index came out as expected, down 0.2%. Core CPI rose at a 0.9% annual rate, the lowest level in four decades. Currently, the 30-Year Fixed is at 4.375% ( 4.523% APR) and the 15-Year Fixed is at 3.750% (4.012% APR). All eyes will undoubtedly be watching the Fed meeting on Wednesday. No change is expected in the fed funds rate, but investors will be watching the language closely for any hints about future Fed moves. We will also see Existing and New Home Sales and Durable Goods Orders.
While the national economy continues to struggle to gain traction, the California real estate market took a definitive turn for the better last month. The median home price in California surged 20.9% from May 2009. The median price for May was $278,000, up from $230,000 a year ago, and up 9% from $255,000 in April. The May median price, which marked a seventh consecutive month of year-over-year increases, was at its highest level since October 2008. Sales of homes costing more than $500,000 made up 21.2% of all transactions in the state, up from 16.5% a year ago. Inventories of low-cost foreclosures and short sales dwindled, comprising only 35.5% of sales, down from nearly 50% just a month ago. In fact, real estate agents in many areas of California are reporting too little inventory for the current demand levels, especially at the lower end of the price spectrum. A little closer to home, the median home price in San Luis Obispo County fell 2.7% from $370,000 in May 2009 to $360,000 last month.