Wednesday Business Report

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Stock markets rallied in morning trading after reports that new home sales and durable goods orders rose more than expected.

Thanks Europe! Low Mortgage Rates Lead to Surge in Refinancing

Interest rates on Treasury bonds have fallen to the lowest levels this year as investors around the globe seek out safe investments in the face of Europe’s growing debt problems.

As a result, interest rates for many consumer loans tied to Treasuries like mortgages have fallen as well. According to the Mortgage Bankers Association, the average 30-year fixed-rate mortgage dropped to 4.8 percent last week.

With these low rates, current homeowners have rushed to refinance their loans. According to the mortgage banking trade group, refinancing applications rose 17 percent from the previous week to the highest level since October of last year.

"Refinance application volume jumped last week as continuing financial market turmoil related to the budget crises in Europe extended the opportunity for homeowners to lock in at historically low mortgage rates," said Michael Fratantoni, vice president of research and economics with the MBA.

Refinancing requests were nearly three-quarters of all applications last week.

Applications for mortgages to purchase homes, however, continue to fall and now stand at 13 year lows. As this week’s home sale reports have shown, home buyers rushed to complete a purchase before the first-time homebuyer tax credit expired at the end of April.

Factory orders rise

Orders to factories for big ticket items, especially commercial aircraft, rose higher than economists expected in April. For the month, the Census Department reported orders for durable goods increased $5.6 billion or 2.9 percent, more than double the forecasts. This was the fourth month in increases in the last five months.

The report indicates that even as the European economy has suffered recently, the U.S. economy appears to be on track to continue growing.

How much does this matter? While not the most crucial of economic reports, the figures do back up economists’ belief that the U.S. economy continues to grow. “The underlying trend is still strongly upwards,” said Ian Shepherdson, chief U.S. economist with High Frequency Economics.

Definition: Durable goods are products expected to last at least three years. The report measures the total orders for durable and non-durable goods.

Full report here.

Surge in New Home Sales Thanks to Tax Credit

The slew of housing data this week concludes with a report that new homes sales rose sharply in April as first time homebuyers rushed to take advantage of a federal tax credit worth up to $8,000 that expired in April.

“The jump in sales reflects the April 30 deadline for people to sign contracts and qualify for the homebuyer tax credit,” said Ian Shepherdson, chief U.S. economist with High Frequency Economics.

The Commerce Department reports single-family home sales increased 14.8 percent to an annual rate of 504,000 units. In March, sales rose nearly 30 percent, the biggest increase in 47 years.

The median sales price for a new home in April was $198,400.

In the Northeast, sales were flat from March to April. Compared to a year ago, however, sales increased more than 85 percent.

Despite the strong reports for the past two months, housing analysts worry sales will drop in the months ahead as the April 30 deadline for the tax credit led home buyers to rush to purchase homes.

Shepherdson noted that 211,000 new homes for sale was the lowest amount since 1968. “Homebuilders have not been persuaded that the strengthening in demand is permanent,” he said.

Full report here.

Luxury home builder Toll Brothers reported this morning it lost less money in its second quarter compared to a year earlier as contracts for new homes and the value of its backlog increased for the first time in years. "It appears our business has finally emerged from the tunnel and into a bit of daylight," said chairman Robert Toll. The company said the New York City market is “doing better.”

Full report here.