Real Estate Guru

Real Estate Market News for the week of March 16th, 2009

Keeping you updated on the market!
For the week of

March 16, 2009

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MARKET RECAP Up, up, and away – and thank goodness. The stock market soared on some very good news: Banks are beginning to make money. Beleaguered behemoth Citigroup said it will actually earn a profit this quarter, and so did almost-as-beleaguered Bank of America. They are recuperating so well, in fact, that both recently said to the feds, “Thanks for the money, but no thanks.” In response to the perception the banking sector could be turning the corner, the Dow Jones Industrial Average (which includes the aforementioned Citigroup and Bank of America) soared over 500 points. Another reason the tide is turning for banks is more government officials and business people are turning against mark-to-market accounting, which requires that banks take hits on their troubled assets by marking these assets against perceived market value. The requirement can devastate balance sheets, and needlessly so. Here's why: Say you had bought rental property two years ago and you borrowed money to purchase your properties. The properties could be cash flowing positively, but their value will likely have dropped, and dropped enough that you would be underwater on the loans. If you were required to mark-to-market those properties on your balance sheet, you could appear to be insolvent, even though your properties are cash flowing positively. It's frustrating for the banks because the system rests more on government guarantees than on its capital base. With these guarantees, banks are able to earn decent spreads above their cost of funds. Just give the banks some time, and they will earn their way out of their current predicament. Citigroup and Bank of America prove they already are. A more profitable banking sector means the lending purse-strings should loosen even more. Indeed, we see that already occurring in mortgage lending, where money continues to be available at very good rates. Borrowers with better credit are still availing themselves of rates in the 5% to 5.5% range. And let's not forget that the wind remains at home buyers' backs. Homebuilders are offering a plethora of incentives to move inventory (but that inventory is dwindling, so the incentives won't last forever). The foreclosure market also offers a wellspring of value. And that $8,000 buyer's credit? It's only available through December.

Economic Indicator	Release Date and Time	Consensus Estimate	Analysis
Industrial Production (February)	Mon, March 16, 9:15 am, et	1.0% (Decrease)	Moderately Important. Production has fallen in recent months, but it remains robust in light of recent GDP numbers.
Housing Market Index (March)	Mon, March 16, 1:00 pm , et	10 Index	Important. Home builders remain pessimistic, but the level of pessimism is easing.
Housing Starts (February)	Tues, March 17, 8:30 am, et	460,000 (Annualized)	Important. As to be expected, home builders continue to reduce additions to inventory.
Producer Price Index (February)	Tues, March 17, 8:30 am, et	All Goods: 0.3% (Increase) Core: 0.1% (Increase)	Important. The recent rise in oil prices will elevate producer prices, but only slightly.
Mortgage Applications	Wed, March 18, 7:00 am, et	None	Important. Lower rates have reinvigorated application activity.
Consumer Price Index (February)	Wed, March 18, 8:30 am, et	All Goods: 0.3% (Increase) Core: 0.2% (Increase)	Important. The expected rise in consumer prices is a non-issue on the inflation front.
Federal Reserve FOMC Meeting	Wed, March 18, 2:15 pm, et	0.25% Federal Funds Rate	Important. The fed funds rate is as low as it can go, and it is likely to stay put.
Leading Indicators (February)	Thurs, March 19, 10:00 am, et	0.4% (Decrease)	Moderately Important. The indicators are unlikely to portend any significant economic changes.

No Better Time than the Present Some of the immediate government actions, such as the injection of capital into the banking system and guarantees given to investors and deposits, have helped ameliorate the financial crisis, but the proposed government incentives to modify loans or lower rates is really “too little, too late.” Worse yet, some of these proposed incentives are keeping too many people on the sidelines. Many potential borrowers are out of the market because of the persistent and widespread rumor that the federal government will take mortgage rates down to 4%, but there is little evidence that the Federal Reserve and Treasury intend to reduce mortgage rates, and less evidence that they would be able to do it and hold rates lower for long. Too many people are overlooking the fact that today's rates are already at all-time lows. They are also overlooking the fact that good rates are available to borrowers of all stripes. But these rates and other lending programs won't last forever. The government has injected massive amounts of liquidity (money) into the economy over the past six months. Massive amounts of liquidity, in turn, increase inflationary pressure, and that can very well lead to higher interest rates down the road. To see homes in Southern California, go to www.TeamHomeSales.com and click on Automatic Home Search or Search the MLS.

Real Estate Market News for March 9th, 2009

Keeping you updated on the market! For the week of March 9, 2009

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MARKET RECAP The two major stock-market measures – the Dow Jones Industrial Average and the S&P 500 Index – ended the week down big, putting both at levels unseen since mid-1996. In short, investors are expressing little faith in near-term economic prospects and even less faith in any of the proposed government anodynes. The latest anodyne is President Obama's $75 billion homeowner rescue plan to pay lenders for altering troubled mortgages while reducing borrowers' interest rates. The plan is voluntary and is aimed at more responsible borrowers, because it requires applicants to document their income with pay stubs and tax returns and to sign an affidavit attesting to “financial hardship.” The idea is to curb foreclosures that have lowered property values. Unfortunately, we could see an increase in “financial hardships” in coming months. The unemployment rate jumped 0.5% to 8.1%, in February, the highest since December 1983 and slightly above expectations for a 7.9% rate. Some economists think it could hit 10% by year's end, and by some broader measures, we are already there. When marginally attached and involuntary part-time workers are included, the rate of unemployed or underemployed workers reached 14.8% last month, up almost six percentage points from a year earlier. Any plan to stem the foreclosure tide is worth listing to, but it is also worth noting how less pervasive the problem is than many people perceive. A recent study by USA Today and RealtyTrac found that more than half of the nation's foreclosures last year were in 35 counties, spread among a dozen states. Not surprisingly, most of the foreclosures were in Southern California , Las Vegas , Phoenix , South Florida , Washington , and recession-addled Detroit . Believe it or not, in more than 650 other counties – about one-fifth of the nation – the number of foreclosure actions actually dropped since 2006. Any plan that will firm up real estate values is a good thing. And reducing the number of foreclosures is one way to do that – as is the slow but steady reduction in excess properties on the market as first time homebuyers take advantage of the new $8000 tax credit. Given this new credit (which is a true credit and does not have to be paid back) along with low rates and the property bargains to be had – now is an excellent time for many Americans to purchase their first homes.

Economic Indicator	Release Date and Time	Consensus Estimate	Analysis
Wholesale Trade (January)	Tues, March 10, 10:00 am, et	0.8% (Decrease)	Moderately Important. The precipitous drop in auto sales continues to weigh heavily on overall trade.
Mortgage Applications	Wed, March 11, 7:00 am, et	None	Important. Mounting job losses are deterring potential buyers.
Retail Sales (February)	Thurs, March 12, 8:30 am, et	0.4% (Decrease)	Important. The trend has been down, but Wal-Mart's recent results suggest pockets of spending strength.
Business Inventories (January)	Thurs, March 12, 10:00 am, et	1.0% (Decrease)	Moderately Important. Businesses continue to reduce supply in this contracting economy.
International Trade (January)	Fri, March 13, 8:30 am, et	$38 Billion (Deficit)	Important. The deficit is contracting on less spending and lower prices.
Import Prices (February)	Fri, March 13, 8:30 am, et	0.5% (Decrease)	Important. Falling import prices will help keep inflation under control.
Consumer Sentiment (March)	Fri, March 13, 10:00 am, et	55 Index	Moderately Important. February's drop in stock prices and employment has consumers feeling less secure.

A Simple Business Lesson This newsletter focuses on real estate and mortgage lending, and both are businesses. For anyone interested in learning a few valuable and applicable business lessons, consider reading Warren Buffett's annual letter to Berkshire Hathaway shareholders (free to everyone at berkshirehathaway.com), which was released last week. Berkshire has businesses in many sectors of the economy (including housing and lending), so Mr. Buffett has a lot to say. More important, what he says is said in witty, insightful prose that anyone – business oriented or not – can understand. Mr. Buffett has rarely been wrong with his longer-term prognostications, so it is worth noting that he, like us, remains an optimist. “ America has had no shortage of challenges,” he says. “Without fail, however, we’ve overcome them.... Though the path has not been smooth, our economic system has worked extraordinarily well over time. It has unleashed human potential as no other system has, and it will continue to do so. America ’s best days lie ahead.” It might be hard to fathom at this moment, but Mr. Buffett will be proven right, and he'll be proven right because of all of us working to make it right. Of course, Mr. Buffet's recent comments stating the "US economy has fallen off a cliff" moved markets world-wide!

Your Real Estate Market Update for March 2nd, 2009

Keeping you updated on the market!
For the week of

March 2 , 2009

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MARKET RECAP We were somewhat surprised that sales of existing homes fell 5.3% to an annual rate of 4.49 million in January, from 4.74 million in December. Much media lamenting was made of the fact that 45% of homes resold in January were short sales or foreclosures. But real estate is local. According to the NAR, these distressed sales accounted for four in five transactions in Santa Ana, Calif., but only one in five in Chicago. Short shrift was also given to the fact that the number of unsold homes on the market fell almost 3% last month to 3.6 million, the lowest inventory level in two years. A reduction in inventory of homes for sale will eventually result in rising property values – a very good thing. As for new home sales, we weren't the least bit surprised. We knew sales would post lower, and they did, falling 10% to a seasonally adjusted annual rate of 309,000 in January from a revised 344,000 in December. It was the lowest level since the Census Bureau began keeping records in 1963. The decline in new home sales comes as builders continue to scale back construction and work off inventory. They appear to be making headway on the inventory front, given that inventory levels have fallen to 340,000 units, down from 357,000 at the end of December. And, as stated above, a reduction in inventory of homes for sale (whether new or resale) will eventually result in rising property values – and that’s something we all want. Looking ahead, economists predict that consumers and businesses may continue cutting back on purchases, which could make the first six months of this year rocky. How do they know that? Many are basing their prognostications on fourth-quarter gross domestic product numbers, which one media outlet noted “contracted at a staggering 6.2% pace at the end of 2008.” We don't know if the contraction in GDP was “staggering,” but it's worth remembering that last quarter's numbers have no predictive power for this quarter, much less this year.

Economic Indicator	Release Date and Time	Consensus Estimate	Analysis
Personal Income & Outlays (January)	Mon, March 2, 8:30 am, et	Income: 0.2% (Decrease) Outlays: 0.3% (Increase)	Important. Job losses have decreased aggregate income, but outlays suggest consumers continue to spend.
Construction Spending (January)	Mon, March 2, 10:00 am, et	1.3% (Decrease)	Moderately Important. Residential spending continues to weigh on overall spending.
Pending Home Sales Index (January)	Tues, March 3, 10:00 am, et	85.7 Index	Important. Despite recent weakness, the overall sales trend remains steady.
Mortgage Applications	Wed, March 4, 7:00 am, et	None	Important. Recent economic news has slowed application activity.
Beige Book	Wed, March 4, 2:00 pm, et	None	Moderately Important. The book is expected to confirm what most of us already know: The economy has contracted.
Productivity & Costs (4 th Quarter 2008)	Thurs, March 5, 8:30 am, et	Productivity: 1.6% (Increase) Costs: No Change	Important. Workers doing more with less are helping to keep inflation at bay.
Factory Orders (January)	Thurs, March 5, 10:00 am, et	1.5% (Decrease)	Moderately Important. The expected decrease will have little impact on capital markets.
Employment Situation (February)	Fri, March 6, 8:30 am, et	Unemployment Rate: 7.9% Hourly Wages: 0.3% (Increase)	Very Important. An unemployment rate higher than the consensus estimate could send equity markets reeling.

Talk, Talk, Talk

We're all familiar with the bromide “talk is cheap.” Maybe it's not so cheap, if we are talking ourselves into a state of despair. People everywhere are likening the current economic environment to the Great Depression, which followed the October 1929 stock market crash and lasted until the United States entered World War II.

Revisiting the Great Depression might seem a logical consequence of our economic situation, but the constant comparison is contributing to current pessimism because too many of us are latching onto the Great Depression as a model of expectations. This latching on, in turn, is reducing consumers’ willingness to spend and businesses’ willingness to expand.

There's no reason to go down that road. Yes, unemployment is approaching 8%. Yes, housing prices have fallen off a cliff in some parts of the country (but in fewer parts then most would expect). Yes, the economy has contracted (operative term being “has contracted”). But there are many bright spots as well: We have little inflation, a very resilient economy, rising wage rates (it's true), 30-year fixed-rate mortgages at 5%, and unbelievable values in the housing market.

Yes, we can talk ourselves miserable, but why should we do that? This country offers too many positives and too much potential. Besides, isn't life just a little too short to be unnecessarily miserable?