Housing and the Economy are on the RISE!!!

The good news on housing keeps coming.  The latest news out of the housing sector is a 2.4 percent rise in the pending home sales index, a gain that points to further improvement for existing home sales. This is also a 12.4 percent increase over the same time last year and the highest in nearly 2-1/2 years. Sales of existing homes have been trending higher for the last year though gains have been slightly behind those for new homes.

Home prices are clearly on the recovery with Case-Shiller reporting a 0.9 percent rise for its 20-city index. This is the fifth rise in a row and the fourth very strong increase in a row. The year-on-year rate is a .5% improvement and shows the first positive reading in nearly 2 years.

The latest good news in regard to housing is the 2.4 percent rise in the pending home sales index.  This is a gain that points to further improvement for existing home sales. The current report reflect a 12.4 percent improvement from the same time last year and it is the highest in nearly 2-1/2 years

The Mortgage Bankers Association reported that purchase mortgage applications increased 1.0 percent in the week of August 24^th.  This is the second straight week of a significant increase.  The refinancing index, which had been very strong earlier in the summer, fell 6.0 percent for a second straight weekly decline.  Mortgage rates moved lower after the recent increases however this was not significant enough to have a major impact on stimulating refinance applications.

The jobs market is improving, but at a snail’s pace and not at a speed that is creating much optimism about future employment reports.  For the week of August 18^th claims remained the same which shows that there is little movement in the employment sector.  Next week all eyes will be on the national employment report due to be released on Friday morning at 8:30AM.  Few analysts expect much in the way of improvement in the national employment picture.

The stock market has been trading in a fairly narrow range this week. This is typical for this time of the year as many people are on vacation and others are busy getting their children back to school.  Additionally many investors are sitting on the sidelines waiting and watching for any hint from Fed Chairman Bernake on the possibility of another round of stimulus. 

For the present time “stability”, if we want to call it that, seems to have taken a little bit of a hold in the European debt crisis.  The interest rates on government bonds in Europe have been able to sell with yields below 7%.  This is a critical measurement in that when government debt in Europe is above that mark, many believe that the governments do not have the capability to sustain the interest payments and that ultimately the government will default. 

JJ Mack

Business is picking up!!!

Who would have thought that real estate could be one of the select few bright spots in the economic landscape.  Although housing is by no means robust, it is certainly on the mend.

Existing home sales rebounded 2.3 percent in July to a 4.47 million annual rate in a gain that partially reverses a 5.4 percent decline in June. The annual rate hit its recovery peak in January this year as warm weather spurred counter-seasonal buying. The rate has since been choppy, but hopefully the July gain will be the beginning of a new upswing.

In more signs of home strength, median home prices are up 9.4% from the same time last year.  This reflects the greatest improvement since the beginning of the housing recovery and is an indication of overall improvement for the market. Other details show sales gains in 3 of 4 regions with the West at no change.

New homes are continuing to rise reporting an increase of 3.6 percent in July to an annual unit rate of 372,000. This is 10,000 above the Econoday consensus and the best of the recovery outside of stimulus driven sales in the spring of 2010.

The rise in total sales is drawing down supply, which explains the very strong readings in the monthly home builders' housing market index. Supply at the current sales rate is 4.6 months which is down from 4.8 months in June and compares with 6.7 months a year ago.  Thin home supply has been limiting sales in recent months and looks to be a continuing factor in keeping sales growth slow.  Many real estate professionals throughout the U.S. are reporting increased buyer traffic.

Investors in the stock market continue to remain on the sidelines for what appears to be two reasons.  First it is the typical end of the summer slow down in which many people take vacation.  In other parts of the country many families are also focused on getting their children back to school.

The second reason is that many investors are waiting and hoping that the Fed is going to announce another round of stimulus in the coming days or weeks,.  Fed Chairman Bernake has not given any indication that the Fed is ready to take action now however, investors continue to believe the fed will take action.  Investors continue to keep an eye on some of the weaker than expected economic indicators and that is where the hope lies that the Fed will be prompted to take action.

The jobs market is improving, but only slowly.  Initial jobless claims for the week of August 18 week are up 4,000 for a second straight week to 372,000 (prior week revised 2,000 higher to 368,000). But prior weeks in late July and early August show a net decline, making for a favorable month-to-month comparison with the July trend.

Next week is a light economic data week.  When you combine that with the end of the summer trading lull, it is not expected that there will be much happening in the markets.

JJ Mack

Housing market IMPROVING!!!

Housing definitely seems to be on the upswing.  Although not all of the housing news is positive, we have been seeing month after month steady signs of improvement.

Housing starts slowed slightly in July after a strong June however permits for new construction showed a healthy gain.  Housing starts in July slipped 1.1 percent, following a 6.8 percent jump in the prior month.  July’s pace for new home construction is annualized at 746,000.  This figure is slightly lower than the market expectation of 750,000 however the current figures are up 21.5% from a year ago.  Additional data in the report shows considerable strength for the future of housing as permits filed for new construction jumped dramatically.

Home builders continue to report significant improvement in activity with the housing market index rising another 2 points this month.  This is the fourth straight month of significant improvement that puts the index at its best level since early 2007.  Home builders were excited to report that current sales and traffic continue to improve.

Mortgage applications were reported down slightly by 2.0% on purchases and down 5.0% for refinances.  Rising mortgage rates are the reason for the declines in both areas, especially in the refinance sector.  Mortgage rates this week have been steadily rising and I expect that next week’s report on refinances will show even more of a decline in applications.  It appears that the refinance boom may very well be coming to an end.  Mortgage rates remain very low and are still below 4.0%.  Many experts believe that 4% is the threshold that will stop the majority of homeowners from refinancing.  On the purchase side I believe that hitting the 4% mark will have a positive impact on buyer activity.  Purchasers that have been sitting on the sidelines may finally come to realize that if they don’t act now, they may miss out on the double benefit of very low home prices combined with very affordable mortgage rates.

There are many reports indicating that the economy is getting stronger.  This is one of the major reasons that mortgage rates have been rising.  In addition, many of the major lenders have been very slow to release their foreclosed properties into the market for sale.  It appears that the lenders are focusing more on stabilizing their balance sheets and by slowly releasing properties into the market, they are stabilizing home prices.  In fact it is being reported in more and more markets that homes are getting multiple offers and bidding wars are starting again because inventory is at the lowest point in more than 5 years.

My suggestion to anyone who has been thinking about purchasing a home…now is the time to act.  Home prices are heading up as well as mortgage rates and it makes sense to take advantage of the current conditions because no one really knows how quickly they will change.

The inflation report for the month of July continues to show that inflation remains under control.  Consumer prices in July came in softer than expected at both the headline and core levels. The concern is that inflation will begin to rise starting with next month’s report.  Prices on the wholesale lever have been increasing.  It is especially noticeable in the cost for food and energy.   

The stock market has been showing signs of life this week as the indices have been steadily rising.  Many investors remain cautiously on the sidelines and the market movement has been based upon light trading that is typical for the summer.

JJ Mack

Housing market shows strong signs of recovery!!

This past week would be considered uneventful by most investors and consumers standards when it comes to market moving economic news.  For all intensive purposes investors have been remaining on the sidelines and although there has been some movement in the market during the trading days, the indices are within a few points of where they started the week.  Investors are keyed in on three main areas, financial strength in Europe, economic growth in China, and still holding out hope that the Fed is going to announce another round of economic stimulus.

In the last week we have seen mortgage rates rise about 3/8% due to a variety of reasons.  The fear of inflation and the reality that inflation is actually happening is weighing on investor’s minds.  Evidence of this is that gasoline prices are up over 30 cents a gallon in the last 30 days and oil prices are up over 16% in the same amount of time.  I know this because I just renewed my home heating oil contract and I was shocked to see how much it increased in such a short period of time.

Zillow, the leading online housing information website recently reported that for people not planning on moving for a few years housing has become much better bet than renting.  According to Zillow, in more than 75% of the 200 metro areas they analyzed, they found that owning would make more financial sense because homeowners would reach a breakeven point in 3 years or less.

More good news coming in the direction of the housing market is that foreclosures continue to fall.  In July foreclosure filings declined for the 22^nd straight month.  There is some concern that although foreclosures have continued to decline, there has been a jump in new filings recently.  It is believed that the increase is being caused by both the stagnant employment situation as well as lenders having cleared up their systems for handling foreclosures since the “Robo-signing” scandal took place.  They can now resume the foreclosure processes under the new guidelines set forth by the government to make sure homeowners rights are protected.

The housing market is definitely showing signs of recovery.  In many areas home prices are stabilizing and even rising.  Now that interest rates are no longer sitting at record lows, it will be interesting to see if fence sitting homebuyers jump into the market or continue to remain on the sidelines.  The experts have mixed opinions on this and we will just have to wait and see what happens.

Mortgage applications for refinancing declined 2% last week.  Refi volume is at a very high level so the decline is not all that significant in relation the number of applications being handled by lenders at the present time.  The big question is how much the interest rate increases this week will impact next week’s application numbers.  I can say with confidence that I believe we will see a significant drop in refinance applications in next week’s MBA report.

There are two things that will impact homeowner’s decisions to refinance.  The first is that with all of the record lows that have been achieved in recent months, borrowers expectations have been reset to a lower level.  What this means is that in the past where an interest rate of 4% seemed like a steal, today that same rate will seem high to some homeowners.  This shift in perception may stop them from applying for a loan.  The second is that some homeowners continue to hold out on the belief that rates will turn even lower.  I was speaking with someone just the other day and they said they expected rates to go down to 2%. Not sure why they were thinking this way but I am sure they are not the only one thinking like this.  Unfortunately I think they are in for a rude awakening.   

JJ Mack

LOW mortagage rates are here only for a limited time!!

Finally we can breathe a little easier about the employment sector, at least for the moment.  Although the national unemployment level increased slightly from 8.2% to 8.3%, the underlying numbers show significant improvement in the labor market.  In July there were 163,000 private sector jobs added to the workforce where in June we only had 73,000.  The jump is far more than analysts were expecting.  The fact that the unemployment rate increased .1% is more of a headline than anything else.  What is most important in this month’s report is the number of people added to the workforce.  The stock market loved the report as of the opening bell with a jump of out of the gate of more than 150 points on Friday morning.

For the investors that have been betting on Federal Reserve Chairman Bernake to launch another round of stimulus, this latest jobs report certainly will slow down the implementation of any new economic stimulus program.  The irony of it all is that for weeks investors have been believing the Fed was going to do something, however I have repeatedly written in my weekly reports that there has been absolutely no indication from the Fed that they were ready to do something now.

This week the Fed released their FOMC announcement stating they are prepared to take more action if the economy warrants it however there is no plan for any action at this time.  This is the same announcement word for word that they have said all year.  Why is it that I have known this all along but investors who are in the market every day don’t seem to understand that the economy is not currently in a place that the government is going to incur more debt to stimulate growth?

Housing continues to show signs of life.  The S&P Case-Shiller Home Value Index for May showed a higher than expected gain of .9%.  This is the third strong gain in a row following 0.7 and 0.8 percent readings in April and March.  Prices are still .7% lower than the same time last year however the gap between last year and this year in prices is closing which is yet another positive sign for the housing market.

The Mortgage Bankers Association reported that the prior week’s applications for mortgage financing were virtually unchanged.  Applications for purchases declined  2% while refinance applications increased only .8%.  Mortgage rates are coming off their record lows and that undoubtedly is going impact mortgage applications.

It is my prediction that we will see refinance applications slow down further as interest rates start to creep up.  I am however very excited in that it is my feeling that the slight increases in mortgage rates will stimulate buyers to jump into the market, especially on the heels of the better than expected employment report.

In many areas of the country real estate professionals are reporting that housing inventories are at the lowest level they have seen in many years.  We are even seeing some bidding wars for houses by purchasers who are determined to land their dream house.  Despite the prices on these homes being driven up through competition, appraisals are still not supporting the value increases which is causes buyers bidding up prices to come up with extra cash to pay the difference between the appraisal value and the contract price.

Consumer confidence improved slightly which is yet another sign that the economy is not quite as bad the media will lead us to believe.  Everything we see on TV and hear on the radio we must filter realizing that the media will make any headline sensational as that is how they get ratings.

JJ Mack