Tag Archive | "Residential Real Estate"

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Dollar Down, Housing Up


US equities held on to opening gains despite weak employment data and a slight reduction in 1st quarter GDP, down from 2.5 to 2.4. The dollar lost ground against a basket of currencies and the euro but remained stable against the yen. Nervous investors have been on edge since Federal Reserve Chairman Ben Bernanke hinted that the Fed was considering tapering down the current easing levels.

Across the pond, euro zone optimism lifted on positive consumer confidence from the region’s five biggest economies; Germany, France, Italy, Spain and the Netherlands. The euro reached a two-week high against the dollar at $1.2974 as analysts are reconsidering the ECB’s potential rate cut.

In overnight trading, the Nikkei had fallen 5 percent to a five- week low. Rumors emerged that Japan’s pension funds were considering investing in equities. The Bank of Japan’s $1.4 trillion quantitative easing has not accomplished the anticipated goals.  Economists are grappling with new solutions. The dollar-yen remains over the 100 threshold.

Housing Surges

S&P/Case Shiller composite index gave more credence to a housing recovery. The index of 50 metropolitan areas showed an increase in average March selling prices of 10.9 percent year-over-year. This marks the largest increase since April 2006 when housing was booming. March house prices rose by 1.1 percent over February.

Confidence in the real estate market also climbed to its highest level in 5 years. Analysts see this as giving legs to the industry’s recovery.

Some of the cities hit hardest by the recession showed strong sales data.

  • Phoenix selling prices are up 22.5 percent this year.
  • San Francisco residential real estate is up 22.2 percent.
  • Las Vegas housing prices are up 20.6 8in 2013.
  • Los Angeles housing prices are up 16.6 percent.

Case Shiller’s national index was up 3.9 percent in the first quarter compared to a 2.4 percent gain in the last quarter 2012.

Barclay’s economist, Michael Gapen, told Reuters:

“Low inventories and gradually improving housing demand have combined to push housing starts higher and support home price appreciation.

“We see these factors as remaining in place and expect residential investment to add to GDP growth in the coming quarters. We also expect rising real estate wealth to support household balance sheets and underpin consumption, helping the broader economy to offset a substantial fiscal drag in 2013.”

Unemployment Claims Rise 10,000

Initial claims for state unemployment benefits jumped by 10,000 last week. This caught analysts by surprise but might help the markets as the trend will ensure the Fed stays in the game. Seasonally adjusted unemployment sits at 354,000 as the four-week moving average climbed up 6,750 to 347,250.

The Consumer Board had encouraging news, reporting that consumer attitudes moved up to 76.2 from 69 in April. This marks the Consumer Board’s highest rating since February, 2008.

Consumer spending accounts for two-thirds of the nation’s GDP. However, second quarter consumption has slowed to 2.5 percent from the encouraging 3.2 percent during the first quarter. Consumer perception of the job market also improved.

GDP

The Commerce Department reported that GDP grew by 2.4 percent during the first quarter, revised down from 2.5 percent. GDP concerns are fueled by the inability of Congress to attend to the people’s financial business. First quarter growth was influenced by reduced government spending, down 4.9 percent in the first quarter alone. The full impact of the sequestration has yet to be felt and many analysts believe growth in the second and third quarters will be low. A pickup in the fourth quarter is expected.

Regrettably, increased fuel prices have contributed to first quarter growth. Reduced energy prices in the second quarter will hurt growth unless consumers spend their savings.

Another factor weighing on GDP is the volatile inventory levels. If the inventory component of GDP is excluded, GDP rose at 1.8 percent.

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42,000 New Jobs = Higher Mortgage Demand


According to the ADP National Employment Report, 42,000 private sector jobs were added in July as the Mortgage Bankers Association said financing applications for the purchase of residential real estate rose.  Bankers attributed much of the rise to favorable mortgage rates  The application rate increased by 1.3 percent in year-over-year comparisons.

The ADP report, which is often viewed as a precursor for the government’s employment report due on Friday, showed a nice jump in private sector hiring and seems to support a stabilization of the economy.  Downsizing activity showed continued improvement in July but planned layoffs rose 6 percent to 41,676 according to consultant Challenger, Gray & Christmas.

The ADP report adjusted June’s employment figures to reflect a 19,000 gain in new private sector jobs compared to the 13,000 new jobs reported earlier.  The optimistic private sector gains were offset by the prospect of continued downsizing.  John Challenger reported that “While it is true that job cuts have increased in each of the past three months, the increases are so slight and the monthly totals so low when compared to recent years, that the trend in no way suggests a reversal of the significant slowdown in job-cut activity witnessed over the past year.”

Government led the way in job cuts for the fourth time this year.  7,193 government workers, a 36 percent increase, were laid off last month.  The Challenger Co. says the government and the private sector will pare 105,969 jobs in 2010.  Following the government, pharmaceutical companies are the next biggest sector in terms of layoffs.  Some 37,010 job cuts are projected for the industry.

Demand For Home Loans Up

The Mortgage Bankers Association announced a rise in home mortgage applications for the third consecutive week, spurring optimism that the recovery was proceeding.  Low interest rates were credited with the gains, which also spilled over into the modification and re-financing sectors of the industry. 

30-year fixed rate mortgages average 4.6 percent, down 0.09 percent form the previous week.  In year-to-year analysis, the new interest rates were well below the 5.17 percent at this time one year ago. 

The real estate crisis has been struggling to gain momentum ever since the expiration of the federal government’s tax credit.  Demand for new mortgages is 40 percent lower than in April when the credits were due to expire.

The Mortgage Bankers also reported that refinancing application increased by 1.3 percent.  Refinancing is a key component of the government’s anti-foreclosure plan.

At the core of the housing problem has been consumer’s fears over employment.  Kurt Gleeson of RealEstate.com said, “The housing market is sputtering.  There is a smaller pool of buyers who can afford to purchase  a home.  The economy and more specifically, the sluggish employment market have excluded many potential buyers.  Job growth remains Number 1 in importance for the housing market.” 

 

 

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The New U Recovery


Okay, the recovery will not be “V” shaped.  It may not be “W” shaped, so today’s media experts now refer to the recovery as “U” shaped, even if it is an extended “U.” 

Well, one thing is for sure, the longer this recession-recovery goes on, the smarter the Oracle of Omaha looks.  Yes, Warren Buffet has a way of putting his finger on the pulse of the economy.  Frankly, the real mystery is why everyone else either does not see what he sees or why they are unable to express their vision as succinctly as the Oracle.

For the past three months, every time Buffett has appeared on CNBC he stresses one consistent symptom.  Hey guys and gals, listen up will you!  This guy gets it, plain and simple.

This recession was in large part caused by faulty and probably unscrupulous lending practices that inflated the value of the residential real estate market and loaded the banks with toxic assets.  The Oracle has said repeatedly that this recovery will not take hold until the excessive residential real estate inventory is brought under control, meaning sells out.  Everything else may be “less bad,” a popular news slogan these days, but that simply stands for baseless.

This recovery has no foundation until the existing residential real estate market is cleared up and moved out.  And, even the Oracle admits that the depth of the backlog may be bigger than expected.

As more and more residential mortgages fail and as more than 1 in every 355 homeowners is in the foreclosure process, the inventory ceiling has yet to be identified.  Buffett does not get too specific about this figure, but the facts are the facts.  There is at least one year’s worth of inventory backed up now.

Are Housing Starts Really Encouraging?

The Commerce Department released figures showing that new housing starts increased by 1.5% from July to August.  The seasonally adjusted rate is now at 598,000.  New building permits rose sharply by 2.7%.  Year-over-year permits applications were 37.3% ahead of last year.  On the surface, that looks like good news.

However, single family home construction actually declined by 3% to a seasonally adjusted rate of 479,000 units.  The figure had risen each of the previous five months. 

Earlier in the week, this was precisely what Buffett had predicted.  In order to clear out the excess residential inventory, new single family housing starts needs to suffer further.  It is becoming increasingly evident that government initiatives are driving the recovery, not national or global economic growth.  Joseph Brusuelas of Moody’s Ecconomy.com explained; “We are at the stage where an economy exits recession.  The recovery is going to be moving along due to policy initiatives and inventory restocking.  It’s a U shaped recovery with some parts of the U a little bumpy.”

The rise in housing starts is partly fueled by the upcoming November 30th expiration of the first-time homebuyer’s $8,000 tax credit.  On Thursday, Treasury Secretary Timothy Geithner reported that the administration has not decided to renew the first-time homebuyers tax credit or any version thereof.  This tax incentive is responsible for more than 375,000 single-family sales so far this year.  Real estate lobbyists have been pushing an expanded version of the tax credit that would put more money on the table and would not be limited to first time buyers.

The ball seems to be in the hands of the Federal Reserve, who meets next week.  As Chairman Bernanke has indicated, the recovery is underway.  The Federal Reserve is believed to be more interested in finalizing an exit strategy rather than pumping more money into the economy.

This is bad news for the 9.7% of Americans receiving unemployment benefits.  It is also bad news for the housing market.  The majority of existing home sales are in the low-end, first home buyer price range.  In addition to the first time buyer, 33% of home sales are distressed sales, meaning either facing foreclosure or already in the system.

Would someone please tell Secretary Geithner that a 2010 tax credit is absolutely necessary.  Let’s get this U moving upwards.  Rather than pull back from the tax credit policies of the past, let’s expand them and put some fuel on the fire.  This is important work.  Tim, talk to the Oracle of Omaha!

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