Real Estate Guru

Real Estate Market Recap for January 5th, 2009

Keeping you updated on the market!
For the week of

January 5, 2009

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MARKET RECAP The markets were in full-holiday mode last week, meaning little was going on. But what was going on was encouraging – and no more encouraging than in the mortgage market. Indeed, applications continued to rise, reaching a new five-year high. A drop in borrowing costs, sparked in part by the Federal Reserve’s plan to buy mortgage-backed securities, continues to fuel activity. If you'll remember back to November, the Fed announced a program to reduce the cost and increase the availability of credit for home buyers. Last week, the central bank selected four firms to manage a $500 billion purchase of mortgage-backed securities, to be completed by June. Only fixed-rate agency mortgage-backed securities guaranteed by Fannie Mae, Freddie Mac, and Ginnie Mae are eligible for the program; nevertheless, the program is expected to drive more funds toward mortgage lending. More funds, in turn, mean lower borrowing costs, and that's been the case in recent weeks. In fact, the prime 30-year fixed-rate mortgage is now hovering around 5.5% while the prime 15-year fixed rate mortgage continues to test 5%. Many parts of the country are availing themselves to mortgage rates unseen in the past five years. The really good news is that these rates are becoming available to a wider swath of the borrowing public. What's more, the number of borrowers eligible for better rates could rise if recent employment trends hold. Initial jobless claims for the week ending December 13 fell a sharp 94,000, bringing the total seasonally adjusted amount of initial claims to 492,000, the U.S. Department of Labor reported. The drop in claims is the largest in 16 years. Some in the media were incredulous, but a Labor Department official told Reuters that “the numbers seemed unbelievable but the states certified they were correct.” We shouldn't get too ahead of ourselves: The labor market continues to suffer from a troubled economy, but at least there are signs suggesting an improved employment situation heading into 2009.

Economic Indicator	Release Date and Time	Consensus Estimate	Analysis
Construction Spending (November)	Mon, Jan. 5, 10:00 am, et	1% (Decrease)	Important. New-home spending continues to weigh on overall construction spending.
Factory Orders (November)	Tues, Jan. 6, 10:00 am, et	3.5% (Decrease)	Moderately Important. Orders will likely pick up after November's slump.
Pending Home Sales (November)	Tues, Jan. 6, 10:00 am, et	88.5 Index	Important. Lower mortgage rates could bolster the index into the waning months of 2008.
Federal Reserve FOMC Minutes	Tues, Jan. 6, 2:00 pm, et	None	Important. The Fed minutes will reveal continued housing and credit-market concerns.
Mortgage Applications	Wed, Jan. 7, 7:00 am, et	None	Important. Mortgage lending continues to improve across the board.
Consumer Credit (November)	Thurs, Jan. 8, 3:00 pm, et	No Change	Moderately Important. Credit growth continues to contract on falling consumer demand.
Employment Situation (December)	Fri, Jan. 9, 8:30 am, et	Unemployment Rate: 7% Hourly Wages: 0.2% (Increase)	Very Important. Some pundits are suggesting unemployment might hit its high-water market.
Wholesale Sales (November)	Fri, Jan. 9, 10:00 am, et	No Change	Moderately Important. Sales will lag with the overall economy.

Don't Look Back, Look Ahead The end of the year is usually marked with deep-thought retrospectives, but we might be better off simply glossing over 2008. We all know it has been a train-wreck of a year for housing, so there is no sense in reliving the obvious. At this point, it's more important to move on (without forgetting the lessons learned, of course). We think 2009 will be a darn-sight better than 2008. The mortgage market has already improved drastically over the past few weeks: More money is available, and more money is available at very good rates. Much of the mortgage activity has been driven by refinances, to be sure, but let's not forget that purchase activity has increased as well. We think purchase activity will continue to increase as more borrowers take advantage of affordable home prices. The key for housing at this point is price stabilization, and the trends on that front remain discouraging. But like we've said many times in these missives, prices can only fall so low. We can say, with some certitude, that we are definitely closer to a bottom than to a top, which is why we will be surprised if we're not writing about a stable, likely rising, housing market this time last year. After all, people can overlook bargains for only so long, so we expect the number of bargain hunters to swell considerably in 2009.

Real Estate Market Recap for December 29th, 2008

Keeping you updated on the market!
For the week of

December 29, 2008

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MARKET RECAP 2008 is winding down, and if recent economic reports are any indication, it's trying to take the economy with it. Gross domestic product – the output of goods and services produced in the United States – decreased at an annual rate of 0.5% in the third quarter of 2008, according to final estimates released by the Bureau of Economic Analysis. The good news is that no one was caught off guard by the expected contraction in output, so the report had little impact on financial markets. The same couldn't be said about the latest housing data, which continues to confound and disappoint. The National Association of Realtors reported that existing home sales fell 8.6 % to an annual rate of 4.49 million in November, from a downwardly revised pace of 4.91 million in October. Meanwhile, the median national existing-home sales price toppled 13.2% in November to $181,300, from $208,000 a year ago – its lowest price since February 2004 and the biggest year-over-year drop on record dating back to 1968. New home sales, like their existing-home counterparts, also hit new lows by slipping 2.9% in November to a 407,000 annual rate, which means on a year-on-year rate new home sales are down 35.3% in 2008. Inventory overload continues to plague homebuilders, despite heavy discounting, posting at 11.5 months, while prices weakened 1.7% to a median sales price of $218,000 – a 7.0% decrease compared to the median price this time last year. (Of course, it's always worth remembering that real estate is local, so the median national price is meaningless to wide swaths of the U.S. market.) The mortgage market continues to remain the one bright spot in an otherwise gloomy housing market. The Mortgage Bankers Association reported that its application index surged 48% the week before last to its highest level since July 2003. Refinance volume grew nearly 63%, but purchase volume grew as well, by nearly 18%, suggesting December's housing data could show considerable improvements over November's.

Economic Indicator	Release Date and Time	Consensus Estimate	Analysis
Consumer Confidence (December)	Tues, Dec. 30, 10:00 am, et	45 Index	Moderately Important. Confidence is expected to hit a new low for 2008, although it is showing signs of improving heading into 2009.
Mortgage Applications	Wed, Dec. 31, 7:00 am, et	None	Important. Application activity remains strong on lower rates and better consumer understanding of the new lending programs.
Chicago Purchasing Managers Barometer (December)	Wed, Dec. 31, 9:45 am, et	33 Index	Moderately Important. Businesses expect the economy will continue to contract in the first few months of 2009.

Instability Creates Stability We've been saying for a while now that the machinations occurring in the housing and mortgage markets will eventually lead to more opportunities; now others are finally catching on. Veteran banking analyst Richard Bove of Ladenburg Thalmann, an investment banking firm, received some media play last week for saying that he “expects housing prices in the United States to stabilize and/or rise after a likely boom in mortgage refinance, as mortgage rates fall and loan applications increase.” We think Bove is right, and we've been saying so for the past few months. Perhaps we were early (or perhaps Bove is late). We also think the current housing market – as unpleasant as it has been – creates opportunity, and, paradoxically, stability. In fact, one can argue that the longer markets remain stable, the more unstable they actually become, at least that's the argument the late economist Hyman Minsky forwarded in an influential monograph titled “Financial Instability Hypothesis.” (Google Minsky's name and you can find the monograph on line.) In short, Minsky argues that too much stability (or good times) creates too much malinvestment, which leads to excesses and eventually instability (or bad times). The opposite is also true: When times are tough, when everyone lacks confidence, when it seems housing prices will never stop declining, when everything seems chaotic, stability returns. We've seen this scenario play out most recently in the stock market: After the bubble burst in tech stocks, when everything seemed a mess, many companies became excellent buys. Everything in housing is messy these days, to say the least, but that mess means the market is more stable than it has been in the past few years. We think Minsky is right in his analysis, which is why we (and apparently Bove) have been chanting that now is as good a time as any to consider either refinancing or purchasing a house.

Market Recap for November 3rd, 2008

Keeping you updated
on the market!
For the week of
November 3, 2008

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MARKET RECAP Optimism received a shot in the arm last week, for there was much to like in both the stock and real estate markets. First, the Dow Jones Industrial Average soared a whopping 889 points on Tuesday in anticipation of the Federal Reserve lopping the fed funds rate to 1% (which it did). Investors, sensing a market bottom, began buying stocks in a piranha-like frenzy. More bargain hunters are appearing in the housing market as well. The week before last, the NAR reported that existing homes sales rose sharply in September to the highest level in 13 months. This week, the Commerce Department reported that new home sales rose 2.7% to an annualized rate of 464,000 units (albeit after dropping by a steep 12.3% in August). The median sale price for a new home fell to $218,400, its lowest level in four years. But that's not necessarily bad; lower prices stimulate demand while constricting supply. Recent housing data indicate that a bottom in home sales might be taking hold, and that could pave the way for an eventual rebound. But let's not get too far ahead of ourselves quite yet. The stabilization of home sales reflects buying conditions in July and August, which could be threatened by the deeper economic woes we've seen in late September and October. That said, optimists can take additional solace in the fact that the bad news wasn't all that bad. The Commerce Department also reported that gross domestic product, or GDP, decreased at a 0.3% annualized rate in the third quarter, the biggest third-quarter decline since 2001. However, the decline is less than the 0.5% decrease that most pundits had expected. Mortgage rates last week is one bone we can throw the pessimists' way. They climbed to the highest level in three months, based on Bankrate's national survey. On that front, the prime 30-year fixed-rate mortgage rose 45 basis points to average 6.77%, the prime 15-year fixed-rate mortgage rose 53 basis points to average 6.46%, and the prime 5/1 adjustable-rate mortgage rose 18 basis points to 6.67%. Still, it’s worth reiterating that primary mortgage rates remain low by historical standards.

Economic Indicator	Release Date and Time	Consensus Estimate	Analysis
Construction Spending (September)	Mon. Nov 3, 10:00 am, et	0.7% (Decrease)	Important. Reduced commercial spending is beginning to take a toll on overall spending.
Factory Orders (September)	Tues. Nov 4, 10:00 am, et	1.8% (Decrease)	Important. The decrease in orders is further proof that the economic slowdown is spilling into the business sector.
Mortgage Applications	Wed. Nov 5, 7:00 am, et	None	Important. Last week's spike in mortgage rates could slow the up-trend in applications.
Productivity and Costs (3 rd Quarter 2008)	Thurs. Nov 6, 8:30 am, et	Productivity: 1.1% (Increase) Costs: No Change	Important. Slowing productivity growth suggests businesses are reducing capital investment.
Employment Situation (October)	Fri. Nov 7, 8:30 am, et	Unemployment: 6.3% Hourly Earnings: 0.2% (Increase)	Very Important. Rising unemployment increases the odds that the economy will dip into recession.
Pending Home Sales (September)	Fri. Nov 7, 10:00 am, et	0.3% (Decrease)	Important. A slight reduction in contracts is expected, but the recent trend remains higher.
Consumer Credit (September)	Fri. Nov 7, 3:00 pm, et	$0.5 Billion (Increase)	Important. Tighter credit standards and economic uncertainty are squeezing consumers.

Liquidity and Lending What's the deal with liquidity, and why is everyone talking about it? Long-dead economist Irving Fisher noted that MV=PT, where M is money, V is velocity, P is price level, and T is transactions. The equation represents gross domestic product. In short, the Federal Reserve is focusing on the M part of the equation because the V part, velocity (or the number of times money changes hands), is slowing. Increasing the money supply (liquidity), in theory, will stabilize the economy. So far, the theory is holding. The world is progressing against financial panic. Capital – private and public – is flowing into the banking system, while the Fed's new commercial paper facility has helped to reignite a vital source of corporate funds. Meanwhile, the Treasury Department's direct bank investments are restoring confidence in these institutions. Confidence (a constant refrain in these missives) is what's needed now. In theory, the Treasury Department's $250 billion in direct bank investment could permit $2.5 trillion in new lending, given 10-1 leverage, if the banks believe the worst is over and begin lending against their expanded capital base. The good news for the mortgage market is that when banks increase their mortgage-lending allocation, they'll find a willing buyer. Both Freddie Mac and Fannie Mae have the capability to buy more than $200 billion in mortgages before hitting their $850 billion annual portfolio cap. With Freddie Mac a net seller of mortgage-backed securities in recent months, many pundits expect both institutions to pick up the mortgage-buying pace over the next two

Market Recap for October 20th, 2008

Keeping you updated
on the market!
For the week of
October 20, 2008

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MARKET RECAP No one would blame you if you complained of dyspepsia these days. After all, one day the Dow Jones Industrial Average is up 400 points, the next day it's down 700 points. That's been the modus operandi in the stock market for the past two weeks, as investors react half-cocked and full-bore to the day's financial headlines. Mortgage rates joined the act last week, moving about like an inebriated butterfly in search of a flower. But unlike the stock market, mortgage rates moved higher – much higher. According to Bankrate's latest national survey, the prime 30-year fixed-rated mortgage averaged 6.74%, the prime 15-year fixed-rate mortgage averaged 6.41%, and the prime 5/1 adjustable-rate mortgage averaged 6.61%. It was the biggest all-around weekly rise in more than 21 years. What gives? Some pundits are blaming higher mortgage rates on the government's $700 billion bank bailout. Banks remain hesitant to loosen the purse strings because they are uncertain about what to sell or to whom to lend. The Treasury Department responded by stating it would take a $250 billion equity stake in potentially thousands of banks. In fact, it's already taken a $100 billion preferred-stock stake in nine of the country's largest banks. This latest move could be the preferred strategy; the direct investment approach immediately improves banks' capital position, which should, in theory, enable them to increase lending activity immediately. We'll see in coming weeks if this new strategy proves effective. Mortgage rates approaching 7% might seem a little ominous, but it's not, if you put today's rates in historical perspective. Back in the early 1990s, when the fallout from the savings and loan crisis was gaining traction, the 30-year fixed-rate mortgage moved between 8% and 10%. If you go back even further, to the early 1980s, when the economy was in a deep recession, 15% 30-year fixed-rate mortgages weren't uncommon. The real villain in today's mortgage market isn’t rates, it’s lack of liquidity caused by overly stringent underwriting criteria. The continued slowdown in housing starts isn't particularly ominous either. Last week, the Commerce Department reported that housing starts fell 6.3% in September to a seasonally adjusted annual rate of 817,000, the lowest since January 1991, sending some professional worrywarts into a conniption. Builders cutting back on production is simply good economics. When a market suffers from an inventory glut, the last thing you want to do is add to that glut.

Economic Indicator	Release Date and Time	Consensus Estimate	Analysis
Leading Indicators (September)	Mon. Oct 20, 10:00 am, et	0.3% (Decrease)	Moderately Important. The indicators offer more proof that the economy is moving toward a recession.
State Street Investor Confidence Indicator (October)	Tues. Oct 21, 10:00 am, et	65 Index	Moderately Important. Confidence is expected to crater with the stock market's recent performance.
Mortgage Applications	Wed. Oct 22, 7:00 am, et	None	Important. The pop in rates last week is expected to slow application activity.
Existing Home Sales (September)	Fri. Oct 24, 10:00 am, et	4.88 Million (Annualized)	Important. Sales are expected to show a slight decline, but lower prices are slowing the downward trend.

I'M BUYING That's basically what legendary investor Warren Buffett said this past Friday. After global equities suffered another bruising week, Buffett revealed that he is now buying U.S. stocks with his own money. He predicted that shares would "substantially" outperform cash over the next decade. Writing in the New York Times, Buffett echoed his famous motto – to be fearful when others are greedy, and be greedy when others are fearful. The word “greedy” is a misnomer. The word “opportunistic” better describes the sentiment. The premise of the message, buying at bargain prices, is worth heeding. What's more, it not only applies to stocks but other forms of investment as well, including real estate, which is something more people will become attuned to in the next 12 months. The only obstacle blocking some opportunistic buyers from applying Buffett's motto to today's real estate market is a sclerotic lending environment. But that could be changing. Buffett's recent stock purchases include Wells Fargo, Goldman Sachs, US Bank and SunTrust. Banks don't make money unless they lend. Perhaps Buffett sees a freer lending environment in the near future. And of course if you need local real estate information on Southern California homes for sale or mortgage financing options, go to www.TeamHomeSales.com If you have questions about the difference between a short sale and a bank owned property you can also watch this short video clip www.cineplextours.com/sh001a  .

Market Update for October 6th, 2008

Keeping you updated
on the market!
For the week of
October 6, 2008

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MARKET RECAP What should have been a sure thing last week turned out to be a sure thing this week. We are referring to the $700 billion financial-market rescue package, which the House of Representatives unexpectedly nixed last week on a 229 to 205 vote, sending equity and credit markets into a tailspin. The Senate then stepped in, larded the package with porcine inducements, and then sent it back to the House for another vote. Fortunately, the House gave the amended package a collective thumbs up and sent it to the President for his signature. The good news is the core of the package remains intact – the Treasury Department will have $700 billion at its disposal to purchase bad mortgage-related securities that are weighing down the balance sheets of the institutions that hold them. The purchases should help improve the flow of credit, which is freezing fast, threatening not only consumers’ ability to make purchases but businesses’ ability to conduct routine operations. And the last thing we need is a new threat to business operations; employers cut the most jobs in five years in September, eliminating 159,000 jobs and sending the unemployment rate up to 6.1%. Unemployment rates weren't the only thing rising last week. Mortgage rates continued their push higher too, erasing half the improvements realized after the feds put Fannie Mae and Freddie Mac in conservatorship. The higher rates reflect an increasing unwillingness among lenders to lend money, and that's not good. And as always, go to www.TeamHomeSales.com to search for homes for sale and rent in Southern California~

Economic Indicator	Release Date and Time	Consensus Estimate	Analysis
Federal Reserve FOMC Minutes	Tues. Oct 7, 2:00 pm, et	None	Important. Markets are expecting the Federal Reserve's bias to shift toward additional rate cuts.
Consumer Credit (August)	Tues. Oct 7, 3:00 pm, et	$5 Billion (Increase)	Moderately Important. The slowdown in credit growth reflects current credit-market conditions.
Mortgage Applications	Wed. Oct 8, 7:00 am, et	None	Important. Applications plunge on increased credit-market turmoil.
Pending Home Sales Index (August)	Wed. Oct 8, 10:00 am, et	85.6 Index	Important. The index suggests falling home prices are stabilizing sales activity.
Wholesale Trade (August)	Thurs. Oct 9, 8:30 am, et	0.2% (Increase)	Important. The increase in sales suggests the economy continues to avoid a recession.
Import Prices (September)	Fri. Oct 10, 8:30 am, et	1.5% (Decrease)	Important. Prices continue to drop on falling energy prices, further mitigating inflation concerns.
International Trade (August)	Fri. Oct 10, 8:30 am, et	$59.5 Billion (Deficit)	Moderately Important. The expected deficit is in line with recent postings and will have little impact on financial markets.

Thawing the Credit Markets No one can overstate the need to unfreeze the credit markets. Home prices dropped in 24 of 25 U.S. metropolitan areas in July, led by declines in Las Vegas and the coastal cities of California , as foreclosures depressed prices and accounted for a fifth of all sales. Foreclosed houses tend to sell at a discount of about 20% to owner-maintained houses; these discounts are weighing on prices throughout the country. Meanwhile, the market for commercial paper, short-term borrowing by businesses, has nearly frozen to a standstill. Even giants like General Electric are suffering. The industrial giant had to sell $3 billion worth of preferred stock to investing legend Warren Buffet and had to place an additional $12 billion of stock in the equity markets to maintain its triple-A bond rating. To get credit flowing again, banks have to start lending to each other at lower rates. When banks charge each other a higher premium to borrow, the cost trickles down to the consumer. One indicator of how willing banks are to lend to each other is the "TED Spread," which measures the difference between the three-month LIBOR (London Inter-bank rate) and the three-month Treasury rate. The higher the spread, the greater the aversion to risk. Last Tuesday, the spread surged to 3.5%, its highest level in more than 25 years. The fact is the $700 billion rescue package is the icebreaker for our frozen credit markets. Sure, the prospect of re-floating a few free-wheeling fat cats and funding a few pork-barrel projects appeals to no one, but the prospect of cutting off our nose to spite our face isn't very appealing either. We might not like it, but Congress did the right thing.

Market ReCap for September 15th, 2008

Keeping you updated
on the market!
For the week of
September 15, 2008

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MARKET RECAP Sometimes sacrifices must be made, though that sentiment is of little comfort when you are the one being sacrificed. Take shareholders in government-sponsored entities (GSEs) Fannie Mae and Freddie Mac, for instance. They saw their equity sacrificed after both entities were taken over by the federal government last week. The effects of the takeover were immediately salubrious – for the mortgage market. Rates tanked after the announced takeover. Bankrate.com's latest survey showed that the 30-year fixed-rate mortgage fell 40 basis points to 6.15%, the 15-year fixed-rate mortgage fell 28 basis points to 5.81%, and the 5/1 adjustable-rate mortgage fell 21 basis points to 6.08%. So why the sudden rate drop? The takeover means that the Treasury Department is promising to buy mortgage-backed securities issued by the aforementioned GSEs. This promise assures private investors in mortgage-backed securities of repayment of both principal and interest, which is why mortgage rates dropped so precipitously. In essence, the government assumed the roll of buyer of last resort. This guaranteed demand provides a floor for mortgage-backed securities prices. That floor, in turn, elevated prices, and when mortgage-backed securities prices rise, yields fall. It remains to be seen whether the mortgage market's windfall will eventually blow over to the housing market, which is certainly due a small windfall of its own. Pending home sales remain flat, with the pending home sales index holding at 86.5. NAR Chief Economists Lawrence Yun says, rather discouragingly, that “even with the direct intervention in the secondary mortgage market, it is unclear if we will go back to sound normal underwriting criteria, or if it will remain overly stringent.” Let's root for normal underwriting criteria.

Economic Indicator	Release Date and Time	Consensus Estimate	Analysis
Industrial Production (August)	Mon, Sept 15, 9:15 am, et	0.3% (Decrease)	Moderately Important. Production has been weakening over the past two months, suggesting business isn't immune to the economic slowdown.
Consumer Price Index (August)	Tues, Sept 16, 8:30 am, et	All Goods: No Change Core: 0.2% (Increase)	Very Important. Falling consumer prices often translate to falling credit prices.
Housing Market Index (September)	Tues, Sept 16, 1:00 pm, et	16 Index	Important. Sentiment remains sour and continues to hold at multi-year lows.
Federal Reserve FOMC Interest Rate Announcement	Tues, Sept 16, 2:15 pm, et	2.0% Federal Funds Rate	Very Important. The Fed is expected to hold short-term rates, but pressure is building to raise them.
Mortgage Applications	Wed, Sept 17, 7:00 am, et	None	Important. Applications surged on the recent drop in mortgage rates.
Housing Starts (August)	Wed, Sept 17, 8:30 am, et	955,000 (Annualized)	Important. Starts are expected to continue along the downward trend, though the rate of descent is slowing.
Leading Indicators (August)	Thurs, Sept 18, 8:30 am, et	0.2% (Decrease)	Moderately Important. Indicators are expected to confirm what we already know: The economy remains sluggish.

Winners and Losers Not everyone associated with Fannie Mae's and Freddie Mac's capital structure was sacrificed last week. The U.K. Telegraph reported that the Treasury Department's move to place Fannie and Freddie into conservatorship netted PIMCO, a bond investing outfit, an immediate $1.7 billion profit. What's more, PIMCO wasn't the lone winner. Nomura Asset Management, T. Rowe Price Group Inc., RiverSource Institutional Advisors and FAF Advisors also netted a tidy profit, having bought nearly $1 trillion in both agencies' debt this past July. Perhaps a similar replay will unfold this week. Lehman Brothers Holdings, another financial firm buried under low-quality subprime mortgage paper, is actively shopping itself to potential buyers, aided by both the U.S. Treasury and Federal Reserve, meaning the U.S. Government is orchestrating its second major bailout in as many weeks. Goldman Sachs and Bank of America are the current front-runners in the Lehman stakes. Regardless of who eventually wins, Lehman shareholders are sure to receive the short-end of the stick, while certain Lehman bondholders could find themselves receiving the long-end. A Lehman bailout won't have the same mortgage market impact as the Fannie Mae and Freddie Mac bailouts, but it will affirm the notion that government can, and does, game winners and losers. Let's just hope the government's willingness to be the financial sector's savior will help the mortgage and housing markets remain long-term winners. It will be reassuring to know that the current machinations will benefit more than just your well-connected bond trader.

Market Recap for August 18th, 2008

Keeping you updated
on the market!
For the week of
August 18, 2008

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Market Recap The National Association of Realtors is on the side of Realtors, which is stating the obvious, so it tends to interpret housing data in a favorable light. For example, the NAR found in its survey of 150 metropolitan statistical areas that 35 of those areas had higher median existing single-family home prices than a year earlier. That sounds a bit better than what's been reported elsewhere in recent months. But that's not to say the NAR won't report bad news; it will. The NAR also said that the median existing single-family home price fell 7.6% nationally in the second quarter. It blamed foreclosures and short sales -- which accounted for a third of transactions -- with pulling prices down. It was also reported that the rate of decline is ebbing, but not from the NAR. While national price declines continue, nominal price drops have stabilized, according to housing price data released by First American CoreLogic. In fact, 883 of CoreLogic's core-based statistical areas registered no price change between June and July, according to Housingwire.com. Good news could also be found in the consumer price index, which, at first glance, doesn't seem so good. Consumer prices rose 0.8% in July, which means the CPI is climbing at a 5.6% annual rate. The good news is that rate is unlikely to be sustained. Crude oil prices, a huge factor in rising prices, started to slide in early July, but gasoline prices didn't begin to decline until two weeks later. The big drop in energy prices in August means we should expect a significant drop in the rate of price increases in coming months. Mortgage markets appear to agree with this assessment, for they hardly budged last week. According to Bankrate.com's weekly survey, the prime 30-year fixed-rate mortgage remained unchanged at 6.74%, while the prime 15-year fixed-rate mortgage fell 1 basis point to 6.26%.

Economic Indicator	Release Date and Time	Consensus Estimate	Analysis
Housing Market Index (August)	Mon. Aug. 18. 1:00 pm, et	16 Index	Moderately important. Home builders remain dour on continued price cuts.
Housing Starts (July)	Tues. Aug. 19. 8:30 am , et	950,000 (Annualized)	Important. Over the past few months, housing starts have been showing signs of stabilizing.
Producer Price Index (July)	Tues. Aug. 19. 8:30 am , et	All Goods: 0.4% (Increase) Core: 0.2% (Increase)	Important. The PPI is expected to spike on July's record oil prices, but markets are expecting lower prices in the future.
Mortgage Applications	Wed. Aug. 20. 7:00 am, et	None	Important. The rise in rates, fewer mortgage products and tighter lending standards are weighing on recent application activity.
Leading Indicators (July)	Thurs. Aug. 21. 8:30 am , et	No Change	Moderately Important. Markets are expecting to see signs of future improvement on the economic front.

WINDS OF CHANGE For most of 2008, we've been walking into a hurricane-force wind. Recent economic data suggests that the wind, if not yet at our backs, is abating: oil prices continue to drop and are now below $112/barrel. Gold prices have tumbled below $800/ounce. The dollar continues to strengthen against the world's major currencies. Factory output is gaining steam. Major banks are easily raising capital to replace what was depleted during the subprime fiasco. When the data points are aggregated, they suggest an improved business outlook – lower inflation, more activity – for the second half of 2008. The mortgage industry should benefit as much as any industry. Banks and other lending institutions are finally getting their houses in order, which means their ability and willingness to accept more risk will increase. An increased risk appetite means more money will be allocated to mortgage financing, which, in turn, will mean more funding options for consumers.

Market Recap for August 4th, 2008

Keeping you updated
on the market!
For the week of
August 4, 2008

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MARKET RECAP Yesterday’s housing bill is today’s housing law. Among the highlights, first-time home buyers will receive a tax credit of 10% of the purchase price of their home, up to $7,500. If you are wondering how Congress defines a first-time home buyer, it’s someone who hasn’t owned a house in the past three years. The validity and efficacy of the credit has to be questioned, because it’s really not a credit; it must be repaid in equal installments over the subsequent 15 years. Another highlight helps people who have fallen behind on their mortgages and who owe more than their houses are worth. In such situations, refinancing is difficult, if not impossible. The law seeks to resolve this dilemma by encouraging lenders to forgive delinquent borrowers’ debt down to 87% of the property’s current appraised value. At that point the homeowner can than refinance under an FHA plan (though he or she will be expected to pay higher FHA insurance premiums). The new law imposes few changes on Fannie Mae and Freddie Mac. Both institutions are a mess, yet the law oddly imposes no changes in management or business approach and no penalties on shareholders. Taxpayers instead are given two dubious protections: The first is that the treasury secretary will have the right to dictate terms if the government has to stump up equity capital for the firms. The second is the creation of a new regulator, whose effectiveness one must question, considering the effectiveness of past regulators. Outside of the housing market, general economic health is waning. U.S. second-quarter gross domestic product came in below expectations, rising 1.9% versus expectations for a 2.2% rise. Slowing GDP, in turn, is impacting employment, and not in a good way. On Friday, the employment situation showed that payrolls declined by 51,000, pushing the unemployment rate up to 5.7%.

Economic Indicator	Release Date and Time	Consensus Estimate	Analysis
Personal Income & Expenditures (June)	Mon. Aug. 4, 8:30 am, et	Income: 0.2% (Decrease) Expenditures: 0.5% (Increase)	Important. Falling income and rising expenditures provides evidence of further economic slowing.
Federal Reserve FOMC Meeting	Tues. Aug. 5, 2:15 pm, et	2.00% Federal Funds Rate	Very Important. The Fed is expected to hold firm on interest rates, but inflationary pressures are raising the likelihood of rate increases.
Mortgage Applications	Wed. Aug. 6, 7:00 am, et	None	Important. Slow economic growth and higher mortgage rates have trimmed purchase activity.
Pending Home Sales (July)	Thurs. Aug. 7, 10:00 am, et	1.2% (Decrease)	Important. This NAR leading indication portends continued sales sluggishness.
Consumer Credit (June)	Thurs. Aug. 7, 3:00 pm, et	$6 Billion (Increase)	Moderately Important. The expected increase should have little impact on credit markets.
Productivity & Costs (2nd Quarter)	Fri. Aug. 8, 8:30 am, et	Productivity: 0.3% (Increase) Costs: 0.0%	Very Important. Productivity outpacing costs will curb inflationary pressures.
Wholesale Trade Sales (June)	Fri. Aug. 8, 10:00 am, et	1.0% (Increase)	Moderately Important. Business growth remains sluggish, but it still doesn’t suggest a recession.

LOWER OIL PRICES, HIGHER HOUSING PRICES Congress is trying its darnedest to jump-start the housing market, but it’s too little, too late. The best medicine for housing, for the entire economy (housing doesn’t operate in a vacuum), is lower energy prices—lower oil and gas prices to be specific. Oil at $130/barrel and gasoline at $4/gallon are enormous drags on the economy. Both impact every facet of economic life, and current price levels are hitting middle-income families – the backbone of the housing market – particularly hard. A drop in oil and gas prices would produce a corresponding rise in consumer confidence (a confident consumer is a spending consumer). So how do we lower prices? By increasing our supply. Market prices of oil and gas will fall on just the announcement of a likely supply increase because of the opportunity costs associated with keeping reserves in the ground. The impact to the economy would be immediate and salubrious. We have all seen various housing districts rendered near-ghost towns because of exorbitant commuting costs, with gas prices being the primary contributor. Maybe if commuting weren’t so costly, the ghost towns wouldn’t be so ghostly.

Market Recap for July 28th, 2008

Keeping you updated
on the market!
For the week of
July 28, 2008

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MARKET RECAP If misery loves company, then few of us are lonely these days, at least if last week’s spat of economic doom-and-gloom news is any indication. Where to start? Well, foreclosure filings rose 14% in the second quarter of 2008 from first quarter totals, according to property-information firm RealtyTrac. More troubling, foreclosures are spreading beyond so-called bubble states – Nevada , California , Florida , Arizona – and beyond economic-disaster states – Ohio and Michigan . RealtyTrac says that 48 of 50 states and 95 of the nation’s 100 largest metro areas experienced year-over-year increases in foreclosure filings in the second quarter. More foreclosures will pressure inventory levels on existing homes, where sales continue to slow. Indeed, sales of existing homes slowed in June and hit their lowest level in 10 years, dipping to an annual pace of 4.86 million units, down 2.6% from a pace of 4.99 million units in May, the NAR reported. New homes sales were also languid, though less so. Sales of new single-family homes dropped 0.6% last month to a seasonally adjusted annual rate of 530,000 units, which is actually better than most expected. The “smart-money” was betting that sales would fall to a 500,000 annual rate. Unfortunately, homes that are for sale will be more costly to finance. Mortgage rates surged last week to their highest levels this year. Reasons offered for the surge include rising inflation (indicated in last week’s jump in consumer prices) and investor fears over Freddie Mac’s and Fannie Mae’s future. Whatever the reasons, the prime 30-year fixed-rated mortgage averaged 6.77%, the prime 15-year fixed-rate mortgage averaged 6.32%, and the prime 5/1 adjustable-rate mortgage averaged 6.48 percent last week, according to Bankrate.com’s survey. There was one morsel of good news in last week’s cornucopia of bad. Consumers are feeling a little more chipper. The University of Michigan ’s consumer-sentiment index rose five points to 61.2 in July, after hitting a multi-year low in June, lending some hope that an improving consumer outlook will offer housing some support.

Economic Indicator	Release Date and Time	Consensus Estimate	Analysis
Consumer Confidence (July)	Tues. July 29, 10:00 am, et	50 Index	Moderately Important. Falling energy prices could lift consumer confidence.
Mortgage Applications	Wed. July 30, 7:00 am, et	None	Important. Higher rates and stricter lending standards continue to slow application activity.
Employment Cost Index (2 nd Quarter)	Thurs. July 31, 8:30 am , et	0.7% (Increase)	Important. Employment costs are expected to rise within inflation-friendly limits.
Gross Domestic Product (2 nd Quarter)	Thurs. July 31, 8:30 am , et	2.2% (Annualized Increase)	Very Important. Despite dour prognostications of recession, the U.S. economy continues to grow.
Employment Situation (July)	Fri. Aug. 1, 8:30 am , et	Unemployment Rate: 5.6% Hourly Wages: 0.3% (Increase)	Very Important. A lower unemployment rate coupled with continued GDP growth could portent an improving economy.
Construction Spending (June)	Fri. Aug. 1, 10:00 am, et	0.5% (Decrease)	Moderately Important. Lower residential construction spending continues to pressure overall spending.

Too Little, and Maybe Too Late A lot of ink and pixels were dedicated to last week’s House vote to offer $300 billion in assistance to troubled homeowners and to throw government support behind Fannie Mae and Freddie Mac. The bill has won endorsements from key senators in both parties and convinced President Bush to withdraw his long-standing veto threat. Major provisions of the bill for mortgage markets include permanently increasing the cap on the size of mortgages guaranteed by Fannie Mae and Freddie Mac to a maximum of $625,000 from $417,000. It would also raise the FHA maximum loan limits for high-cost areas to $625,000. For first-time home buyers, the bill includes a tax refund worth up to 10% of a home’s purchase price but no more than $7,500. That said, the refund really isn’t a refund – it’s more of an interest-free loan, because the “refund” has to be repaid over 15 years in equal installments. The bill will likely give the mortgage and housing markets an immediate boost, but let’s not get carried away with the back-slapping. Artificial stimulus packages are fickle; you can’t be assured that what you want stimulated is actually being stimulated. Besides, markets, if left to their own devices, eventually get it right, though sometimes not as quickly as we’d like. But when they do get it right, they tend to get it right on a more permanent footing. Remember to go to www.TeamHomeSales.com for all of your local Southern California Real Estate needs!

Market Recap for July 21st, 2008

Keeping you updated
on the market!
For the week of
July 21, 2008

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MARKET RECAP California lender IndyMac was last week's disaster du jour. The bank was overtaken by regulators after anxious depositors pulled $1.3 billion from its vaults in less than two weeks. In the annals of U.S. bank failures, IndyMac will end up occupying the number two position. What was the impetus for IndyMac’s sudden and immediate demise? Many fingers are pointing to a loud-mouth, grandstanding U.S. senator. On June 26, Democratic Senator Chuck Schumer of New York sent a letter to market regulators expressing concern about the solvency of IndyMac, saying, “The regulatory community may not be prepared to take measures that would help prevent the collapse of IndyMac.” Schumer, never one to shy away from the spotlight, then publicly released the letter. In the subsequent 11 days, depositors withdrew their money in droves, leaving the bank unable to function. The Office of Thrift Supervision (OTS), IndyMac’s regulator, publicly stated that comments made in Schumer’s letter contributed to the bank’s failure. IndyMac’s management was frustrated with Senator Schumer’s actions, to say the least. That is the same feeling many of us are experiencing with mortgage insurers. Many insurers have been tightening their underwriting standards in recent weeks, further squeezing potential home buyers. They say that more and more of the United States is a “declining market.” This has presented another hurdle for home buyers, and yet another wrenching change for the struggling housing market. Mortgage insurers are painting the landscape with an oversized brush. Many markets they tag “declining” actually aren’t. Most metropolitan areas are actually an amalgam of home-price appreciation and depreciation, yet the trend is for insurers to paint the entire area with the “declining market” sobriquet. Mortgage insurers defend the practice by saying that the data they receive aren’t conclusive enough to be more precise in delineating markets.

Economic Indicator	Release Date and Time	Consensus Estimate	Analysis
Leading Indicators (June)	Mon. July 21, 10:00 am, et	0.1% (Decrease)	Moderately Important. The expected decrease is inconsequential to credit markets.
State Street Investor Confidence Index (July)	Tues. July 22, 10:00 am, et	81 Index	Important. Investors are demonstrating increased willingness to take risk.
Mortgage Applications	Wed. July 23, 7:00 am, et	None	Important. Activity continues to trend higher on lower interest rates and lower home prices.
Beige Book	Wed. July 23, 2:00 pm, et	None	Important. The book is expected to show an elevated inflation risk.
Existing Home Sales (June)	Thurs. July 24, 10:00 am, et	4.93 Million (Annualized)	Important. Markets are expecting another month of stabilizing sales.
Durable Goods Orders (June)	Fri. July 25, 8:30 am, et	0.4% (Decrease)	Moderately Important. The shrinking automobile market is pressuring durable goods sales.
Consumer Sentiment (July)	Fri. July 25, 10:00 am, et	56 Index	Moderately Important. Rising food and energy prices continue to weigh on consumer sentiment.
New Home Sales (June)	Fri. July 25, 10:00 am, et	500,000 (Annualized)	Important. To state the obvious: The environment for homebuilders remains challenging.

THE FHA OPTION Many potential home buyers seem to be stuck between a rock and a hard place: There are bargain homes everywhere, yet it feels like there isn’t a loan to be had. But there is. And not just for borrowers with high-income jobs and 780 FICO scores. FHA loans are becoming the preferred lending option for many borrowers, growing to 12% of the new mortgage market from only 3% during the heyday of subprime and Alt-A loans. The changes to the FHA program have been well-documented, but they are worth repeating. One of the most important changes occurred this past March. As a result of the Economic Stimulus Act of 2008, FHA loan limits were temporarily increased. The current loan limits range from $271,050 to $729,750. Previously, the FHA's loan limits were capped at $362,790. It’s worth reminding buyers, especially those with less than perfect credit, that we are in a bargain-priced market, and that there are still lending options available to get them into a bargain-priced home.