Quick Take: Personal Income and Consumption

December 24, 2008

By Wannasiri Chompoopet, Manager of Housing Statistics

Mortgage Applications

• The Mortgage Loan Application Index, a measure of mortgage loan application volume, rose 48 percent from a week earlier to the level of 1245. Refinance applications surged 62.6 percent in one week. Purchase applications increased 10.6 percent.

Personal Income and Consumption

• Personal income fell more than expected, a decline of 0.2% in November, after increasing 1% in October.
• Consumption fell 0.6% after falling 1% the prior month. Consumer spending is the driver of economic growth. It accounts for more than two-thirds of the nation's gross domestic product. Deteriorating economic conditions, including the recent credit crunch, have squeezed consumer credit, leaving them with less to spend on retail goods.
• The savings rate rose to 2.8% in November, the largest level since May when the tax rebate lifted income.

What does today’s data mean for REALTORS® and consumers?

• With government intervention driving mortgage rates to record low levels, potential borrowers are diving into refinances thus causing the big surge in the mortgage loan index. While a number of applications will ultimately be rejected due to tighter loan standards, an upsurge in loan applications is a good sign for home price stabilization. In addition, successful refinances to lower rates will also help saved troubled homeowners from potential foreclosures.
• Consumers are saving more despite windfall money from cheaper gasoline due to lack of confidence in economy. Consumers are feeling “less wealthy” as home values, overall, have been declining. Rapid job losses, recession fears, and limited access to credit are adding pressure to purse strings.
• Income fell less than spending, meaning consumers are saving, which is important for home purchases. Strong savings and stimulus policies will help potential buyers have more equity for down payments, an improvement to buyers’ fundamentals.

Daily Forecast Update

• NAR's monthly official forecast as of December 9th (57K PDF)
• GDP Q4: -5.8%
• GDP Q1(2009): - 2.0%
• Unemployment rate by mid-2009: 8.2%
• Average 30-year fixed mortgage rate by mid-2009: 5.2%

This is one in a series of commentaries by the Research staff of the National Association of REALTORS®. Read more commentaries >

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