Keeping you updated on the market!
For the week of
February 8, 2010
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MARKET RECAP To belabor the obvious, all real estate is local, so parsing the national data can be of limited use. That said, homebuyers nationally returned in greater numbers at the end of last year, according to the NAR and its Pending Home Sales Index, which increased one point to 96.6 in December from 95.6 in November. That number alone means little. What matters are trends in individual markets. On that front, some encouraging, meaningful data can be gleaned. Home sales in hard-hit Phoenix hit the highest level in four years in December, with total home sales increasing a 12 th consecutive month, according to data from MDA DataQuick. Meanwhile, in even harder-hit Las Vegas , the December home sales volume was at its highest level in five years, though the action is still dominated by foreclosure resales. Of the 5,317 new and resale houses sold in December, 63.3% were foreclosure resales, but that's still an improvement from 64.2% in November. Does this mean that the national foreclosure numbers will become less alarming? They may, or they may not: Home-loan delinquency reached 10% in December, according to Lender Processing Services. Accounting for foreclosures in the pipeline, the total non-current rate stands at 13.3%. When extrapolated for the entire mortgage industry, 7.2 million mortgage loans are behind on their payments. The good news is that 2009 vintage loans are performing much better than any of the prior five years, which means we are likely experiencing a pig-through-a-python environment. As the older vintage loans work their way through the system, foreclosure rates should improve. But nothing – tax credits, low rates, low home prices – will turn fortunes quicker than employment. Fortunately, the latest numbers are improving. The unemployment rate dropped to 9.7% in January, even though employers cut 20,000 jobs. This apparent paradox leads to the common question: how could there be fewer payroll jobs if the unemployment rate declined? Lower participation in the employment market is the rote answer, but it's a little more complicated than that. Unemployment data are compiled from two separate surveys. The unemployment rate comes from the Current Population Survey, a monthly survey of about 60,000 households, while the jobs number comes from Current Employment Statistics, a sample of approximately 400,000 businesses nationwide. The good news is that the aggregated data are generally positive: the unemployment rate declined, average hours worked grew, the percentage of part-time workers fell, and the employment-population ratio rose. . |
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Economic Indicator |
Release Date and Time |
Consensus Estimate |
Analysis |
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Wholesale Trade |
Tues, Feb. 9, |
1.0% |
Moderately Important. Growing sales and inventories portend continued economic growth. |
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Mortgage Applications |
Wed, Feb. 10, |
None |
Important. Refinances continue to set the pace, but purchase activity is improving. |
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International Trade |
Wed, Feb. 10, |
$36.5 Billion (Deficit) |
Moderately Important. A strengthening dollar is stabilizing the deficit. |
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Retail Sales |
Thurs, Feb. 11, |
0.5% |
Important. Sales remain volatile, though the recent trend is mostly up. |
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Consumer Sentiment |
Fri, Feb. 12, |
74 Index |
Moderately Important. Employment gains should be reflected in improved consumer sentiment. |
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Why Don't We All Just Walk Away?
When economists aren't predicting the future, they spend a good deal of time studying behavior. For instance, they've been studying why individual borrowers don't walk away as frequently from their homes as corporate borrowers walk away from their properties. They point to Tishman Speyer Properties and BlackRock Realty, which recently turned in the keys and defaulted on $4.4 billion in loans on their hopelessly underwater Stuyvesant Town and Peter Cooper Village residential properties in New York City . The economists believe more of us should be acting as rationally financially as Tishman Spreyer and BlackRock, and when we do, the foreclosure numbers will spike. There are at least three faults in extrapolating business behavior to individual behavior. First, individuals aren't profit-maximizing firms. We, as individuals, value many things as much as money – happiness, health, continuity, and community comes readily to mind. Second, individuals suffer from the endowment effect: We tend to value things we own more than they would be valued in an arms-length business transaction. We get emotionally attached, in other words, and there are few things we are more emotionally attached to than our home. Third, individuals can't hide behind the anonymity of a corporate aegis. Reputation and fulfilling obligations are ingrained characteristics, which is why we are loath to just up and walk away. We say all that to say this: Individual motives differ from business motives. That's why we are confident in saying that as long as we continue to see improvement in employment – the final determiner in fulfilling obligations – we will continue to see improvement in not only foreclosures but home prices and sales volume as well. It's simply in our nature. |
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