Demand for houses are increasing!!

So many areas of the economy are deteriorating with the exception of housing.  With mortgage rates once again dropping to record lows, buyers are taking notice and hitting the streets.  We are receiving reports of stabilizing home prices as well as realtors across the country are continuing to report increased buyer activity.  In some areas of the country, especially the south, we are even seeing bidding wars on properties.

The National Home Builders Association that releases the monthly Housing Market Index reported that builders have seen a significant increase in demand for new construction in the month of April.  Housing Starts also increased 2.6% in April after having been down by the same amount in March.

There is a lot of concern about Europe again, especially Greece, and that has been weighing heavily on the minds of investors.  If you look at a graph of the stock market for the month of May, it looks like a car rolling down hill without any breaks.  The DOW Jones Industrial Average has dropped 837 points since the 1^st of the month.  Investors are running from the markets and placing their money in the safe haven of government securities.  It is this panic that has the mortgage rates reaching all time lows.

Inflation continues to remain a non factor as consumers have maintained their frugal ways and refuse to pay higher prices.  Many industries have attempted to increase prices on a wholesale or retail level, and as soon as they do, they immediately see a drop in sales.  Consumers simply refuse to pay higher prices.  I am a consumer and I know that since the recession, I have completely changed my spending habits to be more conservative and I see no reason to change this regardless of how the economy improves.

Retail Sales improved however at a much slower pace than before.  In March, sales increased .7% whereas the month of April only realized a slight increase of .1%.  None the less, and increase is an increase.

First Time Jobless Claims remained virtually unchanged for another week.  Some believe this is a sign of employment stability however others seem to believe that there is cause for concern.  Typically at this time of year there is an increase in hiring and that has simply not materialized.  Claims remain constant at a slightly elevated level of 370,000.

With the economy slowing, combined with the concerns from the Greek financial crisis, the Federal Open Market Committee is beginning to warm up to the idea that they may have to launch a 3^rd round of economic stimulus, known as QE3.

By no means is the Fed even in the planning stage of providing more stimulus, they are simply at a point where more members are stating that if necessary they will consider it.  You may remember that just a few months ago, many of the members were staunchly against providing any more help to the economy.  It appears that the deterioration in the markets is beginning to move some of the members to realize that the economy may be in fact slowing down far more than first thought.

JJ Mack

Mortgage rates remain low as EVER!!

Imagine walking into a room full of all your bosses and announcing that you just lost 2 billion dollars for the company and it was all because of taking financial risks that you had no busy taking….CEO Jamie Dimon of J.P. Morgan Chase announced on Thursday that the company lost this extraordinary amount of money because there Chief Investment Officer Ina Drew took “flawed positions” on certain investments.  Simply put, Drew bet on things that the company had no business betting on. Additionally, there are expectations that another 1 billion will be lost in the next quarter.

The biggest irony of the story is that J.P. Morgan Chase is one of the companies lobbying to have a federal law loosened that bans these types of companies from  making bets with their own money.  Mr. Dimon, when my child used to come home later than he was supposed to, he would then argue that he needed to be allowed to come home later.  However since he couldn’t follow the first rule, why in the world would I give him even more freedom?  (Good luck getting the Fed’s to allow you to “lose”, I mean” bet” even more money).

Mortgage rates continue to remain at record lows and buyers seem to be responding to it.  The Mortgage Bankers Association reported this week a nice increase of 3.4% in purchase activity.  Refinances  increased a smaller 1.3%.

Sentiment in many real estate markets around the country is that the combination of low home prices with incredibly affordable mortgage rates is making the time perfect to act on purchasing.  In addition, many markets around the country are beginning to see housing inventories drop which is creating upward pressure on home prices in certain areas.  Ever since the banks had to revamp their foreclosure practices, the amount of foreclosed homes coming on the market has dropped significantly which can further impact home prices.  Less inventory creates more demand.

The stock market has been taking it hard this week in that many investors are becoming more concerned about more financial trouble in Europe.  The stock averages have been declining throughout the week however the losses have not been overwhelming indicating that although there is concern, panic has not set in.

Gas prices have dropped approximately 20 cents in the last 30 days giving drivers a reprieve at the pumps.  What is exceptionally gratifying is that typically gas prices will peak in late May just as the country is heading into the summer driving season.

Inflation on the wholesale level remained unchanged this past month indicating that inflation remains completely in control.  The financial uncertainty in Europe combined with concerns about corporate profits here in the U.S. continue to keep many investors on the sidelines and others putting their money into government bonds which is what is keeping mortgage rates amazingly low.

This week was a quiet week for economic data.  Next week we may see more volatility as we begin to receive the first of many housing reports to be released in the next week and a half.  I have predicted in the past that we would see housing numbers improve however I am giving up my predictions for the time being.  Simple reason, is because my predictions have not been all that accurate, and I can find so many other ways to embarrass myself, I don’t need to do it by making bad predictions or bets.  (Hmm, maybe there is a job opening at J.P. Morgan chase for me).

JJ Mack

Unemployment and all that jazz!!

There has been a lot of trepidation this week awaiting the latest jobless report.  On Friday morning the government announced that the national unemployment rate dropped to 8.1%.  However before you begin to believe that the employment sector is improving, you need to understand the real numbers.

The reason the unemployment figure dropped is because more workers dropped out of the workforce, not because the jobs market got better.  It was announced this morning that only 115,000 jobs were created last month which is significantly lower than March’s 154,000 and February’s 259,000.  The trend for hiring is heading in the wrong direction.

What is interesting regarding unemployment is that I read an article earlier this week that is disturbing in two ways.  The first disturbing factor is that unemployment only includes non working individuals that have sought out locating a job in the last four weeks.  Anyone who has either taken a break from looking for a job, or has given up entirely out of frustration is not included in the unemployment statistics. 

The second even more disturbing fact is that when you count the number of people who fall into the category of not being counted, but are in fact truly unemployed, there are an additional 86 million people.  Imagine what would happen to the national unemployment percentage if those people were counted?

Additional labor news is that the size of the national labor force is the smallest it has been since the 1980’s.  Currently there is little optimism that enough jobs will be created to absorb the bulk of this uncounted group.  Let me remind you that that we have seen that as technology continues to advance, employers can produce do more with less staffing, which ultimately reduces the need for hiring.  I am not suggesting that these individuals in this uncounted labor population will never be re-employed.  I am just making a point that there is more going on behind the scenes regarding the national employment picture than the average consumer understands.

The stock market continued its roller coaster ride this week hitting the highest point in 4 years on Wednesday only to drop back down to where the week began on Thursday.  Overall there has been steady improvement in the markets however concerns about an economic slowdown are beginning to take hold once again.  Additionally, trading volume continues to remain on the lighter side as many investors are sitting on the sidelines waiting to see what happens.  With the poor jobs report, the market is down over 100 points on Friday mid day.

Mortgage rates are once again flirting with all time lows and that is a direct result of investors continuing to place money into the safety of government bonds which drives down the yields which directly impacts mortgage rates.  The near record borrowing rates continue to improve the fuel need to improve home purchasing.  The MBA reported that applications for home purchases continued the improving trend by rising another 2.9% last week.

A report this week showed that homeownership has hit the lowest point in the last 15 years.  Believe it or not, I see this news as a positive sign for housing in the future.  As rental vacancy decreases, the cost to rents will increase.  The continued decline in apartment vacancy combined with the rising rents will ultimately make home ownership less expensive than renting.  This transition will drive buyers into the market.  Additionally, qualifying for a mortgage is starting ever so slowly to ease.  More creative mortgage programs are hitting the housing market which is opening up the door for more buyers to qualify for financing.

JJ Mack