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Chrisman's Corner: As California Goes, So Goes the Nation?

A good percentage of JMAC’s volume comes from California loans, and thus what happens with California’s economy can not only impact our business but also that of other lenders as well. And at the other end of the process, investors keenly watch conditions in California as it will help determine their interest in buying loans from the state, which in turn helps influence mortgage rates.

Although things have improved nicely in the state over the last year, economic conditions eased slightly in July, reflecting weaker state export data, a falling oil drilling rig count, and weaker residential building permits following a surge in permits in the spring months. Payroll employment in California, however, for both July and August increased and that is a very positive sign. The state continues to add jobs at an above average pace compared to the rest of the nation. Economists believe that the California economy is showing signs of ongoing growth, with normal month-to-month fluctuations, which should continue into the autumn.

But when economists look at a state’s economy, what are the variables they pay attention to? Most measures include variables such as nonfarm payrolls, exports, sales tax revenues, hotel occupancy rates, continuing claims for unemployment insurance, and building permits. But California’s economy also includes oil (and thus oil wells) as well as high-tech, and thus a measure of the computer industry is also included.

In particular, the interpretation of housing-related data is challenging, not only in California but the nation. Last week the real pace of the housing market was obscured this week as existing and new home sales for August went in opposite directions. Sales of existing homes dipped by 1.8 percent in August, to a 5.05 million unit annual rate. The months’ supply of existing homes on the market now stands at 5.5 months’ worth. Not loose, but not excessively tight either.

Overall, there is little doubt that the California economy is doing well. This helps investor confidence in continued appreciation in our markets, which in turn helps demand, which in turn helps mortgage pricing. Let’s hope it continues.