Real Estate Guru

Your Real Estate Market Update for July 27, 2009

Keeping you updated on the market!
For the week of

July 27, 2009

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MARKET RECAP The signs are pointing to an economy in full-recovery mode. The leading economic indicators (LEI), which attempt to forecast the economy six months hence, posted a third consecutive monthly increase, with seven of the 10 indicators improving during June. The annualized six-month rate of change of the LEI is now up 4.1%. It's worth noting that since 1950 there have been nine recessions, and the LEI has reliably foreseen the end of all of them. No wonder many economists are now calling for an end to the recession by the fourth quarter of 2009. Guess what? The fourth quarter is less than six weeks away. Nowhere is a recovery more apparent than in housing. Prices increased 0.9% in May from April, the Federal Housing Finance Agency reported. That might not sound like much, but two hard-hit areas – California and the South Atlantic region, which includes Florida – posted meaningful improvement, with prices in California increasing 2.7% and prices in the South Atlantic states increasing 1.4%. Further evidence of a recovery is seen in home sales, which rose 3.6% to a seasonally adjusted annual rate of 4.89 million units last month, from a revised pace of 4.72 million units in May. Sales have risen for three straight months in 40 of 55 major metropolitan areas tracked by the Associated Press-Re/Max Housing Report. It appears increased sales are finally putting a dent in inventory, with the supply of homes falling to 9.4 months from 9.8 months. All the while, mortgages remain very affordable and rates very low by historical standards. On the national level, Bankrate.com reported that the benchmark 30-year fixed-rate mortgage averaged 5.55% last week, while the benchmark 15-year fixed-rate mortgage averaged 4.89%. For those interested in adjustable-rate mortgages, Bankrate.com reported the benchmark 5/1 adjustable-rate mortgage averaged 4.93%. ARMs have received a lot bad press over the past year, to state the obvious, but it's worth noting that they are much less risky today than they were three years ago. Yes, short-term rates are at all-time lows, so there is the very real possibility of rate increases down the road, but with home prices stabilizing, the chances are much greater an ARM can be refinanced (if need be) on a home that will very likely have appreciated in price.

Economic Indicator	Release Date and Time	Consensus Estimate	Analysis
New Home Sales (June)	Mon, July 27, 10:00 am, et	350,000 (Annualized)	Important. The worst appears to be over for homebuilders.
Consumer Confidence (July)	Tues, July 28, 10:00 am, et	50 Index	Moderately Important. Confidence is improving on positive economic data.
Mortgage Applications	Wed, July 29, 7:00 am, et	None	Important. Refinances continue to pace the application market.
Durable Goods Orders (June)	Wed, July 29, 8:30 am, et	0.5% (Decrease)	Important. Orders continue to fall, but only because of fewer automobile sales.
Gross Domestic Product (2 nd Quarter 2009)	Fri, July 31, 8:30 am, et	1.6% (Decrease)	Very Important. The GDP numbers are expected to set the stage for a second-half rebound.
Employment Cost Index (2 nd Quarter 2009)	Fri, July31, 8:30 am, et	0.2% (Increase)	Important. The rise in unemployment is expected to keep employment costs in check.

A Little Less Contemplation, A Little More Action For the past year, the housing market has been a buyer's market nonpareil thanks to a cascade of foreclosures that pushed prices down at an unprecedented rate. Indeed, prices are off $79,800 from the national trend in Los Angeles , off $72,400 in Las Vegas , off $69,900 in Phoenix , and off $53,000 in Miami , according to the Case-Shiller Home Price Index. But trends – good or bad – don't last forever. In fact, the trend of falling home prices has ended in many markets, and will end in many more, leading to a new trend of rising home prices. Many parts of the country are already seeing bidding wars for homes, particularly in the lower-priced niche. Granted, all real estate is local: Home buyers and sellers are less concerned with a few broad (yet important) data points and more concerned with where individual sub-markets are headed. After all, owning a home is an investment in a neighborhood – not necessarily a metropolitan area at large. That said, psychology can go national, and go national rapidly. On that front, expect psychology to turn bullish. Yes, unemployment, currently posting at 9.5%, remains a concern, but corporations are posting higher earnings and higher stock prices. In fact, the Dow Jones Industrial Average broached 9,000 last week, reclaiming all its losses for the year. That portends good news for the economy ahead. The bottom line is, anyone looking to buy a home or refinance a mortgage should probably stop looking and start acting. More often than not, holding out for that last dollar usually means suffering a much larger loss instead.

Real Estate Market Update for July 6, 2009

Keeping you updated on the market!
For the week of

July 6, 2009

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MARKET RECAP Three-day weekends are a much-appreciated respite, particularly when they occur in early July and when the business news starts listing negatively heading into the final days of the week. Early in the week, the news was listing positively, particularly on the housing front. The pending home sales index posted a 0.1% gain in May, after an upwardly revised gain of 7.1% in April, the National Association of Realtors reported. Lawrence Yun, NAR's chief economist, noted that “strong activity by entry level buyers is helping to absorb inventory and allow some existing owners to make a trade.” Yun expects existing home sales to continue to trend higher on the strength of the federal $8,000 first-time homebuyer's credit and sundry state and local incentives. More early-week good news was forthcoming from Standard & Poor's Case-Shiller index, which tracks home prices in 20 metropolitan regions. On a month-to-month basis, overall prices fell an-almost imperceptible 0.6% in April, compared with a decline of 2.2% in March. Even more encouraging, 13 of the 20 regions registered pricing improvements. In a radio interview with Bloomberg, Robert Shiller, co-creator of the Case-Shiller index, noted that “the market is predicting the declines are over”-- that's a sentiment we've been forwarding for the past two months. Unfortunately, we can't say a sustained housing-price recovery is yet a done-deal. The Treasury Department reported that the number of homeowners at least two months behind or in foreclosure jumped in the first quarter of 2009, with much of the increase coming from borrowers who had good credit. This data piece alone would be less troubling if it weren't followed by Thursday's employment report, which showed that employers cut 467,000 jobs in June, exceeding the consensus estimate by 102,000. The unemployment rate now stands at 9.5%, and every economist of any renown sees unemployment hitting 10% by year's end. Given the precipitous rise in the jobless numbers, it was inevitable that consumer confidence would take a hit, and it did. The New York-based Conference Board reported that its confidence index dropped 5.5 points, to 49.3, in June. What was the primary reason for the surge in pessimism? Job security, of course. The negative impact of rising unemployment and lower consumer confidence is difficult to offset, but at least mortgage rates continue to ease, which has the salutary effect of keeping homes affordable to a wider swath of the buying public. On that front, the benchmark 30-year fixed-rate mortgage fell 10 basis points, to 5.7 percent, according to Bankrate.com's national survey of large lenders, while the benchmark 15-year fixed-rate mortgage fell nine basis points, to 5.07 percent.

Economic Indicator	Release Date and Time	Consensus Estimate	Analysis
Mortgage Applications	Wed, July 8, 7:00 am, et	None	Important. Employment concerns and appraisal issues haven taken some of the steam out of application activity.
Consumer Credit (May)	Wed, July 8, 3:00 pm, et	$10 Billion (Decrease)	Moderately Important. Credit use continues to contract on lower consumer spending.
Wholesale Trade (May)	Thurs, July 9, 10:00 am, et	0.1% (Decrease)	Moderately Important. Business activity remains relatively robust despite slowing retail demand.
Import Prices (June)	Fri, July 10, 8:30 am, et	1.5% (Increase)	Important. A sustained, unimpeded rise in import prices would increase inflationary risks.
Consumer Sentiment (July)	Fri, July 10, 8:30 am, et	70.1 Index	Moderately Important. Recent gains could be undone by June's unemployment numbers.

A New and Better Deal The rising unemployment rate is a threat to recent housing-market gains. Offsetting this negative impact, at least to a degree, is a positive impact that should keep many borrowers from falling into foreclosure. HUD announced that it will expand its loan-to-value ratios for refinances; specifically the expansion will include borrowers who are current on payments but whose mortgages are worth up to 125% of the home's value. The primary criticism of the current 105% loan-to-value ratio is that it excludes borrowers who purchased their homes three years ago, when prices were just hitting their peak. Freddie Mac is further sweetening the refinancing pot by encouraging borrows with 30-year fixed-rate mortgages to consider a shorter 25-year term by providing a special price incentive to lenders. The incentive only applies to Relief Refinance Mortgages with LTV ratios between 105% and 125%. Freddie Mac's Relief Refinance Mortgage allows borrowers to finance closing costs, financing costs, and prepaids/escrows up to $5,000 or 4% of the current unpaid principal balance of the mortgage being refinanced, whichever is less. What's more, mortgage insurance is not required if the existing mortgage does not require MI. Many potential borrowers have been dissuaded from taking advantaging of a favorable refinancing market because they think they are too far underwater to bother. These new programs give them a powerful incentive to bother and get that money-saving lower-rate loan they need.