Real Estate Guru

Your Real Estate Market update for February 28, 2011

Keeping you updated on the market!
For the week of

February 28, 2011

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MARKET RECAP Getting a read on the direction of housing is always tough, especially in the winter. This winter has been exceptionally difficult, given that large swaths of the country have been either buried in snow or frozen over. Perhaps the weather explains the latest news on home sales. In January, existing-home sales rose 2.7 percent to a higher-than-expected annual rate of 5.36 million units, though it appears there was significant discounting. The median price fell to a nine-year low of $158,000. The good news was that supply declined to 7.6 months at the current sales rate from 8.2 months, which may or may not be related to the foreclosure moratorium. It's more plausible that weather was the reason new-home sales declined to an annual rate of 284,000 units in January, but we are not sure. Homebuilders might simply be embracing more austerity. The supply of new homes fell 0.5 percent to 188,000 units, while the median sales price rose to $230,600. This suggests that homebuilders are tired of discounting. They would rather reduce output than sell at prices that fail to produce a reasonable return on investment. Pricing remains a national concern. The closely watched S&P/Case-Shiller home price index reported that national home prices declined 3.9 percent in the fourth quarter of 2010. After the index was released, Robert Shiller, the index's co-creator, made the rounds to various media outlets to let everyone know that he's concerned that home prices will continue to fall, and not just a little. Shiller sees prices dropping 15 to 25 percent in real terms. It's important to note Shiller's qualifier, “real terms,” which means prices before inflation and in comparison with other goods and services. It doesn't mean list prices will fall 15 to 25 percent, because we transact in nominal terms, or in inflation-adjusted dollars. Inflation is very much an issue these days: gas is over $3 a gallon in most states and food prices continue to invoke sticker shock. Inflation alone will put a brake on falling real estate prices. This same concept applies to mortgage rates. Yes, rates have stabilized over the past two weeks, as Treasuries have regained their haven status because of Middle East unrest. However, 2 to 4 percent yields on Treasury securities won't be considered a haven when inflation consumes all the return. It is only a matter of time before credit investors demand higher lending rates.

Economic Indicator	Release Date and Time	Consensus Estimate	Analysis
Personal Income & Outlays (January)	Mon., Feb. 28, 8:30 am, et	Income: 0.3% (Increase) Outlays: 0.4% (Increase)	Important. The increase in outlays is being driven by higher food and energy prices.
Pending Home Sales (December)	Mon., Feb. 28, 10:00 am, et	92.9 Index	Moderately Important. The index is expected to post lower on inclement weather.
Construction Spending (January)	Tues., March 1, 10:00 am, et	0.7% (Decrease)	Moderately Important. Spending on single-family construction will likely ease after recent gains.
Mortgage Applications	Wed., March 2, 7:00 am, et	None	Important. Refinances are surging on steady rates, while purchases are trending higher.
Federal Reserve Beige Book	Wed., March 2, 2:00 pm, et	None	Important. Price inflation could shift the Fed's stance on maintaining low interest rates.
Employment Situation (February)	Fri., March 4, 8:30 am, et	Unemployment Rate: 9.1% Payrolls: 172,000 (Increase)	Very Important. After posting mixed results last month, credit markets will be vetting the data for an employment trend.

 

Reality Over Perception

It's easy to lose focus on what is really occurring. A lot of nonsensical speculating and erroneous punditry muddies the waters; therefore, it's worthwhile to step back to perceive the forest through the trees.

For example, many commentators repeat the notion that housing prices have to reach 2006 levels before the economy will recover. Sure, we would all like to see home prices hold steady and at least appreciate with the rate of inflation. However, we need to remember that the housing market five years ago was an anomaly. Today's prices are tough for sellers who bought during the market peak, to be sure, but they are good news for today's buyers, who are helping to clear excess inventory from the market.

Defaults and foreclosures are contributing factors to this inventory overhang, which is why we shouldn't encourage more inventory. Defaulting on a mortgage does not necessarily reflect an inability to pay. The current rules – as well intended as they may be – have produced a new phenomenon: homeowners who default by choice. Moratoriums actually encourage more people who are able to pay to walk away from their obligations, thus producing more distressed inventory.

On a more positive note, national foreclosures are a problem (and predominantly a sun and sand state problem), not a crisis. Real estate is local, and it is even local within our own locality. It's not unusual to see markets not even a mile apart display wildly divergent pricing trends. Fortunately, more commentators are catching on to this reality and are tempering the imperative to make every national problem a local one.

Your February Real Estate Market Update

Keeping you updated on the market!
For the week of

February 21, 2011

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MARKET RECAP We knew it was only a matter of time, and now it appears the time, if not here, is close at hand. We are speaking of inflation, which is more real and tactual these days. Producer prices, which have been climbing over the past seven months, continued their march north. In January, the producer price index spiked 0.8 percent over December. However, the core number, which excludes energy and food prices, was even more disconcerting, posting a 0.5 percent gain – the most since October 2008. Rising prices on the producer side are eventually felt on the consumer side, so it was no surprise that consumer prices also rose in January, with the consumer price index posting a 0.4 percent increase. Consumer prices still appear subdued, posting a 1.6 percent increase for the past 12 months, but the data include big-ticket and infrequently purchased items, such as automobiles and airline tickets. Most of us are aware that day-to-day purchase prices are increasing at a higher rate. This latest data on price inflation points to upward pressure on mortgage rates; even though rates held steady this past week. Is there a reasonable estimate to how high rates will go? PMI Mortgage Insurance sees the 30-year fixed-rate mortgage hitting 5.5 percent by the end of this year and then increasing to 6.5 percent by the end of 2012. (For the record, PMI also predicted the 30-year loan would average 5.5 percent at the end of 2010.) We think 5.5 to 5.75 percent is a reasonable range, with a few caveats, of course, starting with the Federal Reserve. Fed Chairman Ben Bernanke has said that the Fed will keep buying Treasury securities through June to support the economy, but a couple Fed officials have argued that keeping the easy-money policy intact for too long could crimp the Fed's ability to bring inflation under control. The truth is that timing these things is obvious in theory, but very difficult in practice. However, even if we are wrong on price inflation and about the Fed's ability to optimally manage the money supply, other factors could keep mortgage rates moving higher. Pressure is building to wind down Fannie Mae and Freddie Mac, which have guaranteed more than nine out of every 10 mortgages since the financial meltdown. The White House has proposed increasing Fannie and Freddie's prices, phasing in a 10-percent down-payment requirement, and winding down their investment portfolio. These initiatives would put private capital and government capital on a more equal footing. We are in favor of more private investment, because it means more diversity in product offerings and more latitude in pricing and qualifying mortgage loans. Of course, the downside will be higher price loans, but that won't be so bad as long as the economy and the job market continue to improve. A 5-percent 30-year fixed-rate loan is nice, but a broader market of qualified applicants in a 5.5-percent loan market would be even nicer.

Economic Indicator	Release Date and Time	Consensus Estimate	Analysis
Case-Shiller Home Price Index (December)	Tues., Feb. 22, 9:00 am, et	0.8% (Decrease)	Important. The worst in home-price declines is likely over.
Mortgage Applications	Wed., Feb. 23, 7:00 am, et	None	Important. Refinances continue to fall as the market shifts to purchase activity.
Existing Home Sales (January)	Wed., Feb. 23, 10:00 am, et	5.2 Million (Annualized)	Important. Bad weather will likely cause sales to post at the low end of estimates.
New Home Sales (January)	Thurs., Feb. 24, 10:00 am, et	310,000 (Annualized)	Important. Better pricing and reduced inventory are stabilizing the market.
Gross Domestic Product (4th Quarter 2010)	Fri., Feb. 25, 8:30 am, et	3.2% (Annualized Growth)	Moderately Important. This preliminary report is expected to confirm strong growth in exports and retail sales.

Bubble Trouble? We don't think so, but Robert Shiller of the Case-Shiller home price index does. Mr. Shiller recently cautioned that housing prices are likely to “stay in the doldrums for years,” but he added an alternative scenario where a growing speculative component could cause prices to overshoot on the upside. It is an unlikely scenario; rarely do consecutive bubbles form in the same market. Stocks that burst with the bursting of the tech bubble in 2001 are an obvious example. In addition, the common value matrices – such as median-income to median-home prices and rent to home-price appreciation are where they were around 2002. To be sure, they are still a little high by historical measures, but they are much more reasonable compared to 2006 – the apex of the housing bubble. The bigger concern is that the number of buyers who could buy won't. The New York Times recently interviewed Dan Cunningham, a 41-year-old renter. Here's what Mr. Cunningham told the Times reporter: “We would love to have a house; I have more than enough for a down payment. I’m pre-approved for a loan. But I have to have confidence it’s not going to lose another 20 percent.” The Times also reported that Cunningham plans to wait until he sees prices rising before making any offers. And that's the mindset we need to overcome. People like Dan Cunningham more often than not wait too long and find themselves chasing a less favorable, more expensive market. That's an important insight, and it's one the Dan Cunninghams of the world need to know.

December 3, 2010 Home Buyer tips on making an offer on short sales

 

Your Real Estate Market Update for August 16, 2010

Keeping you updated on the market!
For the week of

August 16, 2010

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MARKET RECAP Since the beginning of the year, we've been saying the housing recovery is predicated on a jobs recovery. And although we've been encouraged that we've been making progress on the jobs front in recent months, the latest weekly unemployment-insurance claims news leaves us a little concerned – with claims growing to a six-month high of 484,000. We'd like to say it's an anomaly, but the four-week average has been moving up as well. Unfortunately, this trend doesn't bode well for the August employment report. We can take some comfort knowing that foreclosure filings dropped 9.7 percent in July, compared to the same year-ago period, to post a second-consecutive month of year-over-year declines, according to RealtyTrac. Nevertheless, there were over 325,000 properties that received a filing, which marks the 17th-consecutive month that foreclosure activity exceeded the 300,000 level. The good news is that the trend remains mostly down in the top-ten metropolitan-statistical areas RealtyTrac follows and that the usual suspects – Nevada , Arizona , and Florida – continue to skew the data. Even though job growth is weakening, we still think home prices will remain stable. The NAR reported that the median price for resales of single-family homes increased in 100 of the 155 metropolitan areas it tracks, with the national median price for a single-family home posting at $176,900 in the second quarter of 2010, a 1.5 percent gain compared to the second quarter of 2009. We'd be remiss not to mention the obvious: the NAR's report included a rush to take advantage of expiring federal tax credits. This artificial stimulus has a few pessimistic market watchers expecting home prices to ease in subsequent months. To be sure, the NAR's third-quarter report could show some price easing, but recent monthly price data from Case-Shiller and the Federal Housing Finance Authority suggest, if not an up trend, at least a stable pricing environment in most metropolitan areas. Mortgage rates, in contrast, are in an obvious downtrend. We regularly see the 30-year fixed-rate mortgage quoted in the 4.25 percent vicinity (with points and no risk adjustments), and the 15-year fixed-rate loan regularly quoted in the 3.75 percent-to-4.00 percent range. So why the relentless downtrend in mortgage rates? The most recent decline came courtesy of a rush to buy Treasury 10-year notes, which pushed their yield down to a 16-month low. (Treasury yields influence mortgage rates.) In addition, Federal Reserve officials announced plans to buy $18 billion of Treasury debt and Treasury Inflation Protected Securities through mid-September. These purchases could further constrict Treasury yields; thus, helping keep mortgage rates low – likely through the end of summer. .

Economic Indicator	Release Date and Time	Consensus Estimate	Analysis
Housing Market Index (August)	Mon, Aug. 16, 10:00 am, et	15 Index	Important. A slight improvement is expected, but homebuilder sentiment remains sour.
Housing Starts (July)	Tues, Aug. 17, 8:30 am, et	560,000 (Annualized)	Important. Starts are stabilizing following the post-tax-credit fall off.
Producer Price Index (July)	Tues, Aug. 17, 8:30 am, et	All Goods: 0.2% (Increase) Core: 0.1% (Increase)	Important. Producer prices remain subdued, but an unexpectedly higher posting could move interest rates.
Industrial Production (July)	Tues, Aug. 17, 9:15 am, et	0.5% (Increase)	Moderately Important. Capacity utilization rates continue to increase, but remain below maximum levels.
Mortgage Applications	Wed, Aug. 18, 7:00 am, et	None	Important. Application activity has eased, though purchase activity remains positive.
Leading Indicators (July)	Thurs, Aug. 19, 10:00 am, et	0.1% (Increase)	Important. Recent weakness in manufacturing is weighing on the economic outlook.

What Does Warren Think?

We are speaking of Warren Buffett of course, Omaha , Nebraska 's legendary investing sage. In August 2009, Mr. Buffett penned a New York Times op-ed warning that lawmakers will be tempted to let the Federal Reserve print money (an inflationary, usually interest-rate raising strategy) to deal with the growing national debt.

Today, Mr. Buffett is taking no chances. He recently shortened the duration of the portfolio of bonds held by Berkshire Hathaway (investors shorten bond duration when they expect inflation, lengthen it when they expect deflation), the company in which he serves as CEO. In short, Mr. Buffett is expecting inflation, not deflation, to be the overriding economic concern in the not-too-distant future.

Mr. Buffet has been right, in that the Fed has printed more – a lot more – money over the past year, but so far has done so with impunity. But it's worth keeping in mind that within a system as complex and as unwieldy as our national economy, inflation doesn't just pop up when expected; the timing is unpredictable, and it will likely happen faster than the market anticipates. Therefore, we still don't believe procrastinating for lower rates is a worthwhile strategy, nor do we believe it's a worthwhile strategy to bet against someone who has been so often right as Warren Buffett.

Your Real Estate Market Update for July 5, 2010

Keeping you updated on the market!
For the week of

July 5, 2010

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MARKET RECAP We've always taken pride in going against the crowd (namely, by accentuating the positive), but we must admit that this past week has been difficult, especially after digesting the bleak news on foreclosures. On that front, RealtyTrac reported that homes in the foreclosure process sold at an average 27 percent discount in the first quarter of 2010, as almost a third of all transactions involved properties in some stage of mortgage distress. The low-lights of RealtyTrac's report show that home foreclosures set a record for the second straight month in May, with increases in every state. Bank repossessions climbed 44 percent from a year earlier and will likely set a record in the second quarter. The average price of a distressed property was $171,971; the discount will probably stay between 25 percent and 30 percent as lenders carefully manage the number of new foreclosure actions to avoid flooding the market. The increasing adoption of short sales as a loss mitigation tool will likely exacerbate matters, when you consider that short sales are used as comparable properties for valuations used in refinances, modifications, and sales. Disturbingly, the 2008 vintage of conventional and Alt-A mortgages are performing nearly as poorly as their 2006 and 2007 brethren. Poking around for a semblance of a silver lining, we found that the S&P/Case-Shiller Home Price Index showed healthy price increases in April. In short, the 20-city index posted a 4 percent increase year-on-year, lead by San Diego and San Francisco , which posted price increases of 12 percent and 18 percent, respectively. Even Phoenix beat the national average, with a 5 percent rise. Only Miami and New York posted price declines. We're keeping our enthusiasm in check, though: First, the Case-Shiller data is stale; April is over two months ago. Second, the data is skewed by the rush to take advantage of expiring federal tax credits. We expect to see some softening in prices over the next month or two when factoring the aforementioned foreclosure data and the fact the index of pending home resales dropped 30 percent from April to May. Farther out, we're more bullish, which is why we're still not in favor of reviving the federal tax credits, as some market commentators suggest. We liken today's market to ingesting cod-liver oil: We don't like it, but it's something we'd prefer to take in one gulp instead of many small sips. Inventory has to be cleared, and we think the faster it's cleared, the more robust and sound the recovery will be. We're also not in favor of continued mortgage rate drops. Yes, the drops have been marginal week by week, but weekly marginal drops can accumulate into a substantial drop over time. The only reason rates continue to drop is that investors remain excessively risk averse. As we stated last week, excessive risk aversion is not good for the overall economy. But it is good for borrowers looking to move from a 30-year to a 15-year fixed-rate loan. The potential to save serious money on interest over time is huge, which is why we are counseling many borrowers to consider refinancing into the shorter-term option. .

Economic Indicator	Release Date and Time	Consensus Estimate	Analysis
ISM Non-Manufacturing Index (June)	Tues, July 6, 10:00 am, et	55.4 Index	Moderately Important. Overall business activity appears to be stalling.
Mortgage Applications	Wed, July 7, 7:00 am, et	None	Important. Rate drops are spurring refinance demand, but purchase demand remains weak.
Consumer Credit (May)	Thurs, July 8, 3:00 pm, et	No Change	Important. Tighter credit standards and lower consumer confidence continue to limit credit use.
Wholesale Trade (May)	Fri, July 9, 10:00 am, et	0.5% (Increase)	Moderately Important. Higher energy costs are responsible for most of the increase in trade.

Show Us the Jobs

The monthly employment report is worth a little expatiation, because employment is key to opening the door to prosperity. But the report can be exasperating at times. The June report showed that payrolls declined by 125,000, while the unemployment rate dropped to 9.5 percent from 9.7 percent. It's a paradox, until you read the fine print and discover the rate drop was due to 652,000 people giving up their job search.

This latest edition of the employment report wasn't particularly well received by economists, with one particularly off-put fellow lamenting, "We need unprecedented rates of growth to get out of this hole in a reasonable amount of time. It's hard to overstate how deep the hole is."

Actually, it isn't hard. Bad news is always more titillating than good news: many of us simply enjoy wallowing in misery. We don't, which is why we have no compunction in pointing out that the employment situation really isn't as bad as all that. Yes, payrolls declined by 125,000, but only because 225,000 temporary census workers were given their walking papers. Glossed over in the report is the news that the private sector added 83,000 jobs. The private sector is where we want the growth, and we are getting it.

All in all, we still see a sustained recovery, which is why we continue to badger for home purchases and mortgage refinances today over home purchases and mortgage refinances tomorrow.

Your Weekly Real Estate Update for June 28, 2010

Keeping you updated on the market!
For the week of

June 28, 2010

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MARKET RECAP The housing market is playing out close to what we had anticipated post-April 30, so we weren't surprised to hear that existing-home sales slipped in May, posting a 2.2 percent drop to an annualized adjusted rate of 5.66 million units. The consensus opinion called for sales to increase to 6.07 million units, due to an anticipated push to close by June 30, so the unexpected slip was disappointing. The good news was that the median sales price, at $179,600, remains 2.7 percent above last year's median price, while inventory tightened to an 8.3-month supply. The slip in existing-home sales was nowhere near as disappointing as the tumble in new-home sales, which hit their lowest level since 1963. Whereas the consensus expected sales to post at an annualized rate of 470,000 units for May, the market was only able to deliver a 300,000-unit rate. To get a perspective on just how far new-home sales have dropped, only five years ago new homes were selling at a 1.39-million annualized rate. There was one notable positive in the new-home data – inventory tightened to an 8.5-month supply. The disappointing data on home sales has rekindled talk of a double-dip recession. Many pundits were expecting existing-home sales to improve until July, after which the full impact of the tax-credit expirations would be felt. We've stated in past editions that we expect housing sales to behave similarly to automobile sales when they underwent a similar stimulus. In other words, we expect to see a precipitous sales drop (which we are seeing) followed by stabilizing and increasing sales. Other market watchers are less sanguine. Employment worries have been the gut reaction to the lackluster demand for new homes. Construction will certainly suffer if fewer new homes are being built, so goes the extrapolative train of thought. Keep in mind, though, that renovations on foreclosures and short sales will pick up some of that slack. The more pressing issue, in our opinion, is draining the inventory of existing homes before building more new ones, which appears to be occurring. After all, when you want to drain a tub, you don't keep adding water. Sales aren't the only housing-market variable hitting lows. Mortgage rates continue to hold, and at times exceed, historical lows, and could continue to do so into the near future. The Federal Reserve noted that inflation is “likely to be subdued for some time.” The Fed also said that “prices of energy and other commodities have declined somewhat in recent months, and underlying inflation has trended lower.” But a few dissenting voices note that the low-rate pledge might fuel another asset-price bubble. Experience has taught us that dissenting voices are worth listening to. .

Economic Indicator	Release Date and Time	Consensus Estimate	Analysis
Personal Income & Outlays (May)	Mon, June 28, 8:30 am, et	Income: 0.4% (Increase) Outlays: 0.2% (Increase)	Important. Spending is expected to ease on renewed economic concerns.
S&P Case/Shiller Home Price Index (April)	Tues, June 29, 9:00 am, et	3.4% (Increase)	Moderately Important. April's prices will likely be skewed by the push to exploit federal tax credits.
Consumer Confidence (June)	Tues, June 29, 10:00 am, et	62.9 Index	Moderately Important. Confidence is easing, but remains healthy.
Mortgage Applications	Wed, June 30, 7:00 am, et	None	Important. Low rates alone are no longer stimulating lending activity.
Construction Spending (May)	Thurs, July 1, 10:00 am, et	0.5% (Decrease)	Important. The drop in new-home construction will hurt overall spending.
Pending Home Sales Index (May)	Thurs, July 1, 10:00 am, et	99.8 Index	Important. Sales will decline after the April surge.
Employment Situation (June)	Fri, July 2, 8:30 am, et	Unemployment Rate: 9.7% Jobs: 70,000 (Decrease)	Very Important. Deviations from the consensus opinion will impact interest rates.

The Costs are Outweighing the Benefits

We've stated that the benefits of low interest rates have run their course. We hold to our contrary opinion that low rates are actually hindering more than helping markets these days. Consider the mortgage market: Even though mortgage rates are dwelling in the basement, fewer people are applying for mortgages. The MBA reported that purchase activity declined 1.2 percent to the second-lowest level since 1997 last week, while refinancing activity slid 7.3 percent from its May 2009 highs.

The Federal Reserve's low-rate policy is hardly inspiring confidence. “Rates must be low because the economy is circling the drain,” so the man-on-the-street rationale goes. It's the wrong message to send, because promoting risk aversion also means promoting inertia. Risk-averse markets are simply less willing to engage in riskier, but worthwhile, economic activity.

This risk-averse sentiment is readily reflected in the capital markets, where the relatively non-productive assets of gold and Treasury securities continue to be the investments of choice. That's unfortunate, because we'd all be better off if there were more investment in the very productive (though riskier) assets of home purchases and renovation and mortgage lending.

Your Real Estate Market Update for June 14, 2010

Keeping you updated on the market!
For the week of

June 14, 2010

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MARKET RECAP The week was light on housing and mortgage data, which was a good thing; most of what was released offered little cheer. For instance, Capital Economics reported that 2.5 million households are going through the foreclosure process, while 5.4 million households have missed at least one mortgage payment. Capital Economics also expects another three million homes to be added to the foreclosure rolls by the end of 2011. In short, Capital Economics is calling for a housing-market double-dip. Problems persist aside from the above mentioned, to be sure. According to more than a few sources, housing prices are under pressure. ZipRealty, for one, has noted that more than 43 percent of home sellers cut their home's list price in May, dropping the national median “for sale” price 2 percent to $265,000. Of course, we can always question the usefulness of national data. But if we are going to talk nationally, it's worth broaching the positive as well. On that front, Integrated Asset Services reported that its house price index rose 0.9 percent in April from March. IAS also reported that three of the four US census regions showed home-pricing gains for the month. The expiration of the federal homebuyer tax credits remains the elephant in the room, according to the commentariat, though it appears to be less of a concern for people who actually earn a living in the housing sector. Publicly traded homebuilders are seeing sales recover after an initial drop-off following April 30. A recent analyst's report from JMP Securities noted that sales at several homebuilder communities in California , Texas , and Phoenix – those notoriously hard-hit regions – have begun to improve and are approaching pre-April numbers. JMP's report also noted that many builders are raising prices and that higher-priced homes are moving briskly. We noted in last week's edition that the housing market could easily follow the automobile market's lead, where sales initially drop after tax-credit expiration but then regain momentum. We've also noted – quite frequently in many past editions – that employment is the real cure to what ails us. Even though last week's employment report was tepidly received, we remain encouraged. Job openings jumped to the highest level in 16 months in April, with the number of jobs advertised rising to 3.1 million from 2.8 million. The fact that private employers accounted for the entire gain was a particularly encouraging sign. An improving jobs outlook is good news for the economy, but less so for mortgage rates. Yes, rates continue to hold at historical lows (with improvements being marginal at best), but Federal Reserve rumblings on raising rates continue to build, which is why we continue to counsel against procrastination on a refinance or a home purchase. We also counsel that money is available: little, or negative, equity is not an exclusion to a favorable refinance. .

Economic Indicator	Release Date and Time	Consensus Estimate	Analysis
Import Prices (May)	Tues, June 15, 8:30 am, et	0.8% (Decrease)	Important. The price trend remains non-inflationary.
Housing Market Index (June)	Tues, June 15, 10:00 am, et	22 Index	Important. Homebuilder optimism continues to improve with the overall economy.
Mortgage Applications	Wed, June 16, 7:00 am, et	None	Important. Low rates appear to have reached a saturation point.
Housing Starts (May)	Wed, June 16, 8:30 am, et	650,000 (Annualized)	Important. Markets are expecting a post tax-credit retreat, though activity appears stable.
Industrial Production (May)	Wed, June 16, 9:15 am, et	0.7% (Increase)	Important. Strong business demand is driving recent production increases.
Consumer Price Index (May)	Thurs, June 17, 8:30 am, et	All Goods: 0.1% (Decrease) Core: 0.1% (Increase)	Important. Consumer prices continue to show that inflation remains subdued.
Leading Indicators| (May)	Thurs, June 17, 10:00 am, et	0.2% (Increase)	Moderately Important. The indicators suggest the economic recovery remains on track.

Another Round of Reasonable Perspective

There is no question that we face formidable, long-term structural problems – problems that have made US markets less attractive in recent years. But these problems are surmountable. We have no qualms saying that the spirit of innovation and entrepreneurship that has defined America in past crises will prevail today.

Though housing remains tepid and debt and deficit levels are rising, compared to the rest of the world the United States is in good shape. Our economic fundamentals are sound: manufacturing levels are up and interest rates and inflation are low. What's more, the broader economic recovery is translating into meaningful employment improvements and corporate-profit growth that could potentially reach a record high in this year's third quarter.

Risks clearly remain, but markets are always fraught with risks: there are no perfect markets. To the contrary, when markets seem the most perfect, that's when they are the most risky, as the housing and mortgage markets post-2006 have so painfully revealed. Things still aren't so rosy today, but that's okay, because we're sure that better days lie ahead.

Your Real Estate Market Update for May 17, 2010

Keeping you updated on the market!
For the week of

May 17, 2010

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MARKET RECAP The pig is progressing through the python – the pig being the shadow inventory of foreclosures, the python being the market. According to Barclays Capital, there are currently 2.4 million loans in 90-plus day delinquency and another 2.1 million in foreclosure, totaling 4.5 million in shadow inventory. Barclays says that this inventory should reach the high-point this summer and then fall off, as the market absorbs an estimated 130,000 distressed properties per month. New foreclosures shouldn't distend the market much further. Foreclosure filings dropped year-over-year for the first time since RealtyTrac began measuring such statistics, in January 2005. Granted, we are dropping from monumental levels, but it is good news nonetheless. The aggregated numbers remain a little daunting, but it's worth noting how foreclosure activity is measured. RealtyTrac adds notices of default, notices of foreclosure sale, and actual foreclosures (so if a property goes all the way to REO, it will be counted three times) to arrive at activity. REOs are still at record levels, but the initial stages have declined substantially, which bodes well for the shadow inventory; hence, Barclays' optimistic prediction that the worst, if not yet over, is close to being over. All these bits and pieces of housing data eventually work their way into home prices, which continue to stabilize, as demand for higher-priced homes (driven by improving job prospects) picks up and the sale of distressed properties cease changing hands at deeply discounted prices. On that front, the number of metropolitan areas where median prices are rising grew for the fourth consecutive time. In the latest quarter, prices gained in 91 of the 152 metropolitan areas tracked by the NAR compared to 67 in the fourth quarter of 2009 and 30 in the third quarter of 2009. In short, we're on the right path. But the farther we go down that path, the fewer deals we'll encounter. A year ago, buyers were keeping to the sidelines because they were concerned with catching a falling knife – buying a home at $250,000 only to see a comparable property fetch $230,000 three months later. We believe those days are over, which is one reason we continue to implore those on the sidelines to get in the game. Mortgage rates are the other reason. Yes, the 30-year fixed-rate loan continues to bob around 5 percent while the 15-year fixed-rate loan continues to bob around 4.5 percent, but they're not sinking, and they won't. Therefore, we see no reason for someone inclined to refinance or to buy a home not to, especially given the optimistic outlook on jobs and the economy and the continued expectation for higher mortgage rates. .

Economic Indicator	Release Date and Time	Consensus Estimate	Analysis
Housing Market Index (May)	Mon, May 17, 1:00 pm, et	20 Index	Important. Homebuilder confidence is expected to gain momentum on April's strong showing.
Housing Starts (April)	Tues, May 18, 8:30 am, et	680,000 (Annualized)	Important. Permit growth suggests there is little chance of any backsliding.
Producer Price Index (April)	Tues, May 18, 8:30 am, et	Finished Goods: 0.2% (Increase) Core: 0.1% (Increase)	Important. Recent advances in producer prices could pressure interest rates higher.
Mortgage Applications	Wed, May 19, 7:00 am, et	None	Important. Lower rates have renewed interest in refinances.
Consumer Price Index (April)	Wed, May 19, 8:30 am, et	Finished Goods: 0.1% (Increase) Core: 0.1% (Increase)	Important. Consumer-induced inflation remains under control.
Federal Reserve FOMC Minutes	Wed, May 19, 2:00 pm, et	None	Moderately Important. Expect Fed officials to adhere to their low-rate mantra.
Leading Indicators (April)	Thurs, May 20, 10:00 am, et	0.2% (Increase)	Important. Strength in manufacturing and housing permits point to a sustained economic recovery.

The Post-Credit Era

We've been saying for the past month or so that we're not particularly worried about the end of the federal home buyers tax credits. We also weren't particularly concerned when the Federal Reserve said it would cease purchasing mortgage-backed securities. After all, the only way to discover if a market is truly healthy and viable is to stop subsidizing it.

It's still early to render a verdict, but so far so good. People recognize that the combination of low rates and lower home prices represent a great opportunity, while many shoppers who failed to find a home to qualify for the tax credit remain undeterred and, just as important, rational – understanding the go-go days of the early 2000s are over. And that's a good thing. The market of that era was driven more by speculation and less by fundamentals. And though it was highly remunerative for many of us, we see how it turned out.

In housing, slow and steady wins the race, which is why we continue to advise our clients that today's market offers good fundamentally sound deals that can be financed at good economically advantageous interest rates. Sounds like a win-win deal to us.

Your Real Estate Market Update

MARKET RECAP

In news that surprised no one, the pending home sales index surged to 102.9 in March. We all expected the months heading into April would produce more home sales, and that's the way it's playing out. What's more, it's likely to continue to play out over the next couple months, given closings usually occur a month or two after the contract has been signed.

Of course, the expiring federal tax credits are the impetus for the spring rush. Most market watchers are expecting a drop once they've worked their way through the system, so we shouldn't be terribly disappointed if sales growth stalls after being artificially stimulated.

That said, we remain optimistic. We think the housing market is sufficiently stable to stand on its own, particularly when considering the latest pricing data released by PMI Mortgage Insurance, which shows the risk of continued price declines is shrinking. Its latest report finds that 93% of the 384 metropolitan statistical areas it follows posted declining risk scores in the fourth quarter of 2009.

In addition to finding a less risky pricing environment, buyers are also finding a more welcoming lending environment. According to the Federal Reserve's latest survey, most banks didn't tighten lending standards during the first quarter of 2010. The survey also showed more banks expressing a greater willingness to lend. We've stated in previous newsletters that an improving economy goes hand-in-hand with less stringent underwriting, because lending is perceived as less risky in a growing economy. We expect further easing as the economy continues to grow, enticing more marginal borrowers into the market.

Consumer spending is another important measure of an economy's health. On that front, personal consumption posted a 0.6 percent gain in March, following a 0.5 percent jump the month before. Economists have been saying for months that the economic recovery would be anemic until the consumer sector became healthier. It appears healthier today.

So, we have a growing economy, stabilizing home prices, and possibly easing underwriting standards. That sounds like a recipe for higher mortgage rates, but that wasn't the case last week. In fact, rates dropped across the board and held near all-time lows. Is it possible we've cried “wolf” once too often and that low rates are now a permanent fixture of the economy?

We don't think so, because the factors that most influence interest rates still point to higher rates. The financial calamity in Greece was given as the primary reason for last week's rate decrease. Money moved out of riskier European investments into safer US Treasury and government-insured mortgage-backed securities, In short, more money was available for mortgage lending; hence the lower rates. But this too shall pass, and likely sooner than most market watchers expect.

Your Real Estate Market Update for April 19, 2010

Keeping you updated on the market!
For the week of

April 19, 2010

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MARKET RECAP Foreclosures remain front-page news. RealtyTrac reports the number of homes taken over by banks jumped 35% in the first-quarter of 2010 compared to the same year-ago quarter. More worrisome, foreclosures grew 7% from the last three months of 2009. It appears we're backsliding again. The foreclosure rate was easing late last year, as banks were pressured to modify home loans. In addition, many states enacted foreclosure moratoriums to give troubled homeowners some breathing room to catch up on their payments. Never mind that banks were struggling with their own survival. Our modus is to accentuate the positive when possible, since the positive is given short shrift by the mainstream media. On that front, the foreclosure problem remains concentrated in 10 states, lead by the usual suspects – Nevada , Arizona , Florida , and California (but not the entire state). We found more positive news in the NAHB/Wells Fargo Housing Market Index, which showed a marked improvement in homebuilder sentiment, rising to 19 from the consensus estimate of 16. Many commentators credited additional business driven by the impending expiration of the federal homebuyer’s tax credits, but that doesn't make sense. We're all aware that a buying surge was likely heading into April, but homebuilders are surely looking beyond April. Perhaps the fact housing starts posted at a better-than-expected 626,000 units for March is a better measure of the renewed optimism. Other variables are at work too; many are positive, including economic activity, which increased in most parts of the country, according to the Federal Reserve. We're not surprised. In past editions, we noted that the stock market is a reliable economic indicator, and the stock market continues to show a strong recovery. Our optimism appears to be rubbing off on more consumers, of whom 72% opine that it's a good time to buy a house, according to a recent Gallup poll. Gallup said the figures were "potentially encouraging,” presenting sellers with an audience of buyers who believe buying a home would be a good investment. We agree with Gallup – buying a home is a good investment. To that, we can add financing is still a good deal: Rates have dropped in the past week and mortgage activity has slowed, increasing the odds that home buyers will get the home they want and the loan they need at the most advantageous prices. .

Economic Indicator	Release Date and Time	Consensus Estimate	Analysis
Leading Indicators (March)	Mon, April 19, 10:00 am, et	0.9% (Increase)	Important. The indicators suggest an accelerating economic recovery.
Mortgage Applications	Wed, April 21, 7:00 am, et	None	Important. Activity will likely increase on lower rates and an improving economy.
Producer Price Index (March)	Thurs, April 22, 8:30 am, et	Finished Goods: 0.3% (Increase) Core: 0.1% (Increase)	Important. Inflation remains under control, but producers are better positioned to pass along costs.
Existing Home Sales (March)	Thurs, April 22, 10:00 am, et	5.2 Million (Annualized)	Important. Sales should rebound on impending expiration of homebuyer tax credits and better weather.
FHFA Home Price Index (February)	Thurs, April 22, 10:00 am, et	None	Moderately Important. Prices will show some weakening, but mostly due to seasonality.
New Home Sales (March)	Fri, April 23, 10:00 am, et	320,000 (Annualized)	Important. Sales remain sluggish, but homebuilder sentiment suggests future improvement.

We're Past the Graveyard; It's Time to Move on

The counter-intuitive – black is white, up is down, north is south – is a popular theme in business books these days. Bad news is good news is another one. In our own world, the bulging problem of foreclosures and delinquencies appears to be bad news. If you dig a little deeper, though, it really isn't.

Foreclosures aren't growing alarmingly, nor are they necessarily new for that matter. They existed in abundance last year, but if you'll remember, last year was a time of waning confidence and growing uncertainty. In other words, we didn't have the stomach, and we weren't sure if the banks had the financial wherewithal, to deal with the problem, so we didn't. Fast forward a year later, and much has changed – fortunately for the better: The financial system isn't collapsing, banks aren't hemorrhaging money, and the economy isn't spiraling into the abyss. To the contrary, the financial markets are stabilizing, banks are making money, and the economy is improving. In other words, we are much better positioned today to address yesterday's problems. Call it the strategy of “whistling past the graveyard.”

Well, now we are past the graveyard, so expect banks to stop whistling and to start aggressively working to resolve their foreclosure and REO issues. What's more, expect them to resolve these issues rationally and orderly. That's good news, because we don't expect banks to destabilize the market by flooding it with distressed properties. That means it's still a buyer's market, but only in the sense that prices are as low as they're going to go, and that's good news too; buyers who buy today are unlikely to suffer buyer's remorse.

To search for homes in the Southern California region, go to my website at www.TeamHomeSales.com You can also revise your search by clicking on the 'Advanced option search" to search only for bank owned or real estate owned properties.