Real Estate Guru

Real Estate News for May 25th, 2009!

Keeping you updated on the market!
For the week of

May 25, 2009

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MARKET RECAP As the economy sputters and putts along, many economists continue to look for signs the housing market is climbing out of the chasm dug by the subprime mortgage meltdown. Given the sentiment from homebuilders, some may say the housing market is finally making progress on scaling the chasm's often-slippery walls. On that front, the National Association of Home Builders/Wells Fargo Housing Market Index rose by two points (to 16) in May, reflecting greater confidence in the newly built residential housing market. The fact that the May index continued to tick up from April’s five-point increase provides confirming evidence that the improved confidence level was no fluke. Despite growing optimism in the new-home market, many economists remain less sanguine on the prospect of an overall housing-market recovery, given that the number of new housing starts declined 12.8% last month to a seasonally adjusted annual rate of 458,000 units, the lowest pace on records dating back 50 years. But it is worth noting that much of the decline was concentrated in apartment construction, which tumbled 46.1%. On a brighter note, single-family home construction actually climbed 2.8%. Mortgage-market trends, on the other hand, offer a promising, tangible sign that a sustained recovery is possible. The Mortgage Bankers Association’s index of purchase applications, though falling slightly last week, continues along a higher long-term trend, thanks to investors and home buyers taking advantage of lower home prices and stable, historically low mortgage rates. On the latter, the 30-year fixed-rate mortgage remains near record lows reached at the end of March. Not to repeat ourselves on one theme too often, but mortgage rates are unlikely to go significantly lower. Many of the government's recent economic stimulus initiatives have increased the odds of more inflation down the road. And that's not just us talking: Federal Reserve Bank of Philadelphia President Charles Plosser said prices may rise 2.5% in 2011, a rate well above central bankers’ preferred range, and cautioned against complacency on inflation – another reason we remain convinced that there is no time better than the present for getting a mortgage or for buying a home.

Economic Indicator	Release Date and Time	Consensus Estimate	Analysis
Consumer Confidence (May)	Tues, May 26, 10:00 am, et	42 Index	Moderately Important. Confidence continues to improve along with the economic outlook.
State Street Confidence Index (May)	Tues, May 26, 10:00 am, et	82 Index	Important. The increase in demand for riskier investments shows investors are expecting an economic recovery.
Mortgage Applications	Wed, May 27, 7:00 am, et	None	Important. Recent increases in purchase activity portend a sustained recovery.
Existing Home Sales (April)	Wed, May 27, 10:00 am, et	4.65 Million (Annualized)	Important. More economists are expecting lower prices to stimulate sales into summer.
Durable Goods Orders (April)	Thurs, May 28, 8:30 am, et	0.2% (Decrease)	Important. Big-ticket items continue to lag, but the data are showing signs the worst is over.
New Home Sales (April)	Thurs, May 28, 10:00 am, et	360,000 (Annualized)	Important. New home sales continue to contract, but homebuilder sentiment is improving.
Gross Domestic Product (1 st Quarter 2009)	Fri, May 29, 8:30 am, et	5.6% (Decrease)	Very Important. A closer vetting of the data suggests the economy slowed less than expected in the first quarter.

Bad News as Good News There has been no shortage of media coverage on the foreclosure market over the past six months. In fact, the foreclosure market seems to be the only growth market left in the country, if you listen to some accounts. The bad news is that foreclosure activity is up 32% from last year, with one in every 374 US housing units receiving a foreclosure filing in April, the highest rate yet seen by RealtyTrac, which has tracked activity since January 2005. The good news is that demand for these homes is growing. Indeed, Housingwire.com ran an article that basically stated foreclosed homes are becoming the “hot-ticket” item in real estate. In a survey by Trulia.com and RealtyTrac, 55% of survey participants indicate they are at least somewhat likely to consider purchasing a foreclosed home in the near future, compared to the 47% who said the same in November 2008.

Your Real Estate Market Update for March 4th, 2009

Keeping you updated on the market!
For the week of

May 4, 2009

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MARKET RECAP Sometimes bad news isn't as bad as it seems. For instance, gross domestic product dropped at a 6.1% annual pace in the first quarter of 2009, easily blowing past predictions for a 5% annualized drop. The decrease marked the weakest posting since 1958. Bad news, right? Not so fast. It's tempting to cite the grim first-quarter GDP decline to squelch talk of any recovery in the U.S. economy, but the numbers actually contain flickers of hope. Nearly half of the GDP contraction was due to businesses slashing production in order to bring inventories in line with sales. The process, although perhaps incomplete, is well advanced, which means businesses may soon have production levels where they want them. That, in turn, could set the stage for increased business spending in the second half of the year as consumer demand increases. In fact, consumer demand is already picking up. The monthly data on home, car, and retail sales confirm that consumption has broadly stabilized. Although home construction has tumbled, the worst is probably over: in any case, the sector is now so small that further declines mean little to overall output. The recent rise in stocks prices – arguably the most reliable economic indicator – and in consumer confidence also bodes well for businesses and consumers alike More good news can be found in seemingly bad news on the housing front. Home prices continued to decline in 20 major U.S. cities in February, according to the S&P/Case-Shiller Home Price Index, but the rate of decrease slowed for the first time since 2007. Average prices are now down 30.7% from the housing market's mid-2006 peak. Phoenix has fallen the furthest, dropping 50.8% from its high, while Dallas has been one of the better performers, slipping a relatively modest 11.1% from its peak. Odds at this juncture favor long-term home-price appreciation over long-term depreciation. Meanwhile, mortgage rates continue to hold steady, with 30-year fixed-rate mortgages still available in the 5% range. But again, we need to warn that rates could be approaching a low, if they haven't already reached one. Treasury yields are starting to rise, a sign of a strengthening economy and a sign that inflation could be lurking on the horizon. At this point, we think holding out for lower mortgage rates is becoming a riskier bet.

Economic Indicator	Release Date and Time	Consensus Estimate	Analysis
Construction Spending (March)	Mon, May 4, 10:00 am, et	1.3% (Decrease)	Moderately Important. Spending is expected to be at or near a bottom.
Pending Home Sales Index (March)	Mon, May 4, 10:00 am, et	81.8 Index	Important. The index is expected to show signs of an improving selling environment.
Mortgage Applications	Wed, May 6, 7:00 am, et	None	Important. Purchase activity is improving on first-time buyer incentives.
Productivity and Costs (1 st Quarter 2009)	Thurs, May 7, 8:30 am, et	Productivity: 0.4% (Increase) Costs: No Change	Important. Productivity outpacing costs is a key factor in raising national living standards.
Consumer Credit Outstanding (March)	Thurs, May 7, 3:00 pm, et	$2.5 Billion (Decrease)	Moderately Important. Rising credit card rates are slowing credit use.
Employment Situation (April)	Fri, May 8, 8:30 am, et	Unemployment Rate: 8.8% Wage Rate: 0.2% (Increase)	Very Important. Unemployment continues to trend higher, but economists are expecting a slowdown in the increase.

Confusing Averages Averages are an intricate part of data aggregation and dissemination. We reference averages, such as national average mortgage rates or average existing new or existing home prices, in the newsletter. These averages are useful, because they project a large macroeconomic picture quickly. But averages can also misinform. Picture a room with Bill Gates, Warren Buffett, and eight other people, each of whom earn $100,000 annually. If a statistician were to average the annual incomes of the 10 inhabitants, the average annual income would be several million dollars a year, even though eight of the 10 inhabitants make nowhere near that amount. It would be impossible to implement a successful sales strategy based on that average income. In other words, averages can be irrelevant. Such is often the case with real estate. We noted that home prices in Phoenix tumbled an average of 51% from 2006 highs, while Dallas prices tumbled an average of 11%. Average these two numbers and you get an average decline of 31%, which makes the Phoenix market look more robust than it is and the Dallas market less robust. What's more, that average is even more misleading because it is based on an average of an average. Point is, don't let national averages influence your opinion of the economy too much. Most business is local, and what's happening in one part of the country can be completely different from what is happening in another part of the country. What's happening in your part of the country is what's most relevant.