Pat Hill Realtor

Housing Market Week of June 15, 2009

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INFO THAT HITS US WHERE WE LIVE We got the news last week that May foreclosure filings were down 6% from April. This was the first month-on-month decline since January. On top of that, the drop would have been larger except for increases in just a few states. It's important to note that the bulk of foreclosures are concentrated. If you take out the four states with the highest number of foreclosures, the remaining 46 states had only 1% of mortgages in foreclosure, according to the Mortgage Bankers Association. Also remember that not all homes with foreclosure-related filings wind up owned by the lenders. Many homeowners are able to refinance their loans or negotiate a loan modification or short sale. Finally, Sen. Johnny Isakson (R-GA) last week introduced a bill to raise the homebuyer tax credit to $15,000 and make it available to everyone purchasing a primary residence, with no income ceilings. S.1230 would sure help the housing market, but it's a long way from being passed by both Houses and signed by the President. Meanwhile, first-time buyers should note they have less than six months to take advantage of the current $8,000 tax credit, which expires December 1.

>> Review of Last Week

THE DOW'S UP FOR THE YEAR!... It was a mild trading week, but when all was said and done, the Dow Jones Industrial Average ended ahead for 2009, the first time it's been in the black since January. The S&P 500 and the Nasdaq were also up for the week and in positive territory for the year. There was little bad news except for the Balance of Trade, which increased for the second month in a row. Exports are at their lowest level in three years, but economists expect an improvement, the dollar's drop making our goods a nice deal for foreigners. The good news ranged wide. The US Treasury said 10 big banks would start repaying the TARP money they got last fall under the Troubled Asset Relief Program. Great news for taxpayers. In addition, all 19 of the big banks given Treasury "stress tests" now have plans for capital to meet the worst test "scenarios." There's certainly been a major shift in the financial climate from when many feared one or two big banks might fail or need to be nationalized! Thursday, Retail Sales came in UP 0.5% for May, with the increase in auto sales showing bankruptcy is good for business if you're Chrysler or GM. Friday, May's University of Michigan Consumer Sentiment Index reached its highest reading in 9 months. New unemployment claims fell for another week to their lowest level in five months. And March and April figures were revised adding 82,000 more jobs. The Dow ended UP 0.4% for the week, to 8799.26; the S&P 500 gained 0.7%, to 946.21; and the Nasdaq was UP 0.5%, to 1858.80. The bond market saw another week of mixed moves. The FNMA 30-year 4.5% bond we're now tracking ended at $98.28, up 81bp for the day. Mortgage interest rates have inched up enough to slow refinancings, but they're still at historically low levels for purchasers, whose applications are UP THREE WEEKS IN A ROW!

>> This Week’s Forecast WHAT'S GOING UP?... We'll find out about new homes going up, with this week's Housing Starts and Building Permits. We'll also see if producer prices are going up, with the PPI, and consumer prices, with the CPI. These numbers could indicate if rates may go up at the Fed meeting next week. Finally, the LEI on Thursday will be looked at for more signs the overall economy is going up.

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Housing for the week of June 8, 2009

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INFO THAT HITS US WHERE WE LIVE  Lots of encouraging housing news last week. April Pending Home Sales came in UP 6.7%, rising for the third straight month and a 3.2% improvement over a year ago! The National Association of Realtors housing affordability index is near a record high and mortgage rates, while creeping up last week, are still at historically low levels. In fact, applications for purchase loans were UP 4.3% last week, according to the Mortgage Banker's Association.

Prospective buyers should take note that Freddie Mac's weekly Primary Mortgage Market Survey reported that 30-year fixed-rate mortgages averaged 5.29% with an average 0.7 point. This was up from 4.91% the previous week, but still well under the 6.09% average rate a year ago. These rates, incidentally, are for buyers with good credit and a 20% down payment.

Finally, two large homebuilders reported that losses in the quarter ending April 30 had shrunk from levels of a year ago. They cited lower prices as the big draw for buyers, but the pace of price declines seems to be slowing. IHS Global Insight, a research firm, reported home prices fell on average at a 2.2% annual rate in Q1 of this year, a big improvement over the 12.5% drop measured in Q4 of last year.

>> Review of Last Week

ANOTHER WEEK UP!... The market had a strong rally Monday and although the moves were modest the rest of the week, the major indexes closed up nicely at the end. This was particularly gratifying since the week began with General Motors filing bankruptcy. Investors felt GM bondholders had made concessions over the weekend that would permit a new, more competitive GM to emerge fairly soon.

Some experts say the economy has bottomed and we're beginning a "v-shaped" recovery. The week gave them ample support. April Personal Income was UP, with wages and salaries increasing for the first time in eight months! Personal Spending was down –0.1%, indicating consumers are still cutting spending. ISM Manufacturing increased in May, with new orders showing expansion, posting its highest reading in 18 months. China's manufacturing grew for the third month in a row, so the global economy may be recovering. There were also better-than-expected manufacturing numbers from the UK and Eurozone. ISM Non-Manufacturing increased to its highest level since October. Even autos helped out, with sales up 6.4% for the month, the fastest rate of climb this year. The good news in Pending Home Sales is covered above.

Friday's employment report showed nonfarm payrolls down 345,000 in May, with March and April revisions adding 82,000 jobs. This brought the net job loss for May to 263,000, way better than expected and the smallest drop since August 2008. The pace of job losses is clearly slowing from the 749,000 level hit in January. The unemployment rate was 9.4%, still below the 11% of 1982, and the rise all came from an increase in the labor force. Without that, the rate would be 8.7%.

The Dow ended UP 3.1% for the week, to 8763.13; the S&P 500 gained 2.3%, to 940.09; and the NASDAQ was UP 4.2%, to 1849.42.

It wasn't a great week in the bond market, with prices hammered as stocks rose. Because of decreases in the price of mortgage bonds, we're now tracking the FNMA 30-year 4.5% bond. The week ended with this bond at $98.19, down 81bp for the day. When prices improve, we'll get back to following the FNMA 30-Year 4.0% bond. At the moment, lower prices are pushing up yields and mortgage rates, now over 5%. These are still historically low rates that are VERY ADVANTAGEOUS for homebuyers and homeowners looking to refinance higher rate mortgages.

>> This Week’s Forecast

ANOTHER LOOK AT CONSUMER SPENDING... There aren't a lot of economic reports coming out this week, but we will have Retail Sales numbers that should show us whether the consumer is helping things along just yet. The trade balance could be interesting, but there are no big names reporting corporate earnings.

>> The Week’s Economic Indicator Calendar

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For the week of May 25, 2009

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INFO THAT HITS US WHERE WE LIVE  Last Tuesday, Housing Starts for April came in at an annual rate of 458,000 units, a drop of 12.8%. Ignored by the media was the fact that ALL the decline came from a 46.1% drop in multiple-family starts, which are volatile from month to month. Single-family home starts were actually UP 2.8% for April. Building permits, a harbinger of future starts, fell 3.3% in April, to a 494,000 unit annual rate. But this was also ALL due to a drop in multiple-family units. Permits for single-family homes were actually UP 3.6%.

The volatility of multiple-family starts makes it likely that April's move down will be followed by a May rebound. The trend to note is that single-family starts are climbing. After bottoming in January and staying flat for February, they're now UP two months in a row. Experts say the recovery in starts will begin gradually, given the size of excess inventories. Some also say a major home building turnaround could begin late this year. The fact is, with population growth and knock-downs, we'll need about 1.6 million starts a year (a 250% hike!) just to return to normal. No wonder the Builder Confidence index shot up two points in May, to its highest level since last September.

Finally, a recent survey of realtors revealed only 29% felt home values would decline in the next six months, while half think they'll stay where they are – and 22% see home values rising! So there.

>> Review of Last Week

INCHING UPWARD... Things started off in the markets very nicely last Monday, but as the week wore on, stocks lost ground as they reacted to some of the less encouraging developments being reported. But these were offset by positive news items whose influence prevailed enough to keep all three indexes ahead (barely) when things closed down Friday for the holiday weekend.

Might as well get the negatives out of the way. The fall in housing starts and building permits disturbed investors in spite of the upward trend in single-family activity covered above. Although weekly initial unemployment claims were down, as they have been for three of the last four weeks, continuing claims remained high, at 6.6 million. Wednesday the minutes from the Fed's April meeting came out with lower real GDP projections for this year, 2010 and 2011. The U.K.'s sovereign debt rating outlook was downgraded to negative, which hurt the dollar and boosted commodities like crude oil which went up over 9%.

So enough with the sad stuff. The week began with Bank of America getting its stock added to Goldman Sachs' Conviction Buy List. Then home improvement retailer Lowe's came in with better than expected earnings and guidance. A slew of other retailers also beat quarterly earnings estimates, including Target, Saks, TJX, Home Depot, Sears and Gap. Guess consumers actually are out there spending!

Things are still far from normal, so the Dow squeaked up a scant 0.1% for the week, to 8277.32; the S&P 500 gained 0.5%, to 887.00; and the NASDAQ went up 0.7%, to 1692.01.

Prices in the bond market were under pressure in a shortened session Friday, though things weren't too bad for the mortgage backed security we watch most closely. The FNMA 30-Year 4.0% bond, which is closely tied to mortgage rates, ended Friday at $99.41, down 12bp. Mortgage interest rates fell slightly last week, remaining below 5% for more than two months, as tracked by Freddie Mac's weekly survey of conforming mortgage rates.

>> This Week’s Forecast

MORE HOUSING DATA AND NOT MUCH ELSE... It's a four-day week, with the markets closed Monday for Memorial Day. We'll have both Existing Home Sales and New Home Sales for April. We'll also be curious to see where Consumer Confidence is at now, as well as the revised GDP number for Q1 – will it be better than first reported, as most economists expect? There are also a few Q1 corporate earnings reports left to contemplate.

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Housing Market for the week of May 18, 2009

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INFO THAT HITS US WHERE WE LIVE  The National Association of Realtors (NAR) reported that the median price for a single-family home in Q1 was 13.8% lower than in Q1 a year ago. But first-time buyers represented half of all purchases and many went for foreclosures and short sales. These "typically are selling for 20% less than traditional homes," according to the NAR, and this skews median prices downward. On a hopeful note, 18 of the 152 metro areas in the survey reported PRICE INCREASES.

Equally hopeful was the fact that in many areas, the number of homes for sale continued to drop in April. Some analysts see this as a sign the housing market is nearing a bottom, especially since inventories have historically increased in April. 

Finally, at last week's NAR conference, the CEO of the International Council of Shopping Centers pointed out that demographics are in our favor. The high school graduating class in 2010 will be the biggest in our country's history. As that huge cohort moves forward, it will generate lots of economic prosperity, beginning in the near future.

>> Review of Last Week

LET'S TAKE OUR GAINS... Well, we had a nice two-month rally in which the Dow headed north eight out of nine weeks, so it wasn't surprising that a slew of investors finally sold off their holdings and took their gains. This of course drove prices down, so last week the stock market indexes went lower across the board. 

It wasn't just profit taking that sent stocks down. Wednesday, April Retail Sales came in at –0.4%, which investors didn't much like. But if they had looked more closely, they would have seen the decline was mostly in two categories – gas stations and grocery stores, where experts don't expect weakness to persist. Take out these sectors and retail was down just 0.1%.

For the rest of the week, the Consumer Price Index (CPI) came in flat, which shows inflation is in check, but the Core CPI number was up a little more than expected. Industrial Production was down for April, though better than expected. The NY Empire State Index, a good measure of manufacturing, shot up for the second month in a row, hitting its highest level since last August. University of Michigan Consumer Sentiment came in higher than anticipated. Finally, the President of the Dallas Federal Reserve averred that "the U.S. economy has pulled back from the edge of the abyss."

Nonetheless, the Dow slipped 3.6% for the week, to 8268.64; the S&P 500 dropped 5.0%, to 882.88; and the NASDAQ slid 3.4%, to 1680.14.

Even though stocks were falling, things weren't all that terrific in the bond market, though prices held on well enough. The FNMA 30-Year 4.0% bond, a mortgage backed security closely tied to mortgage rates, closed Friday at $100.12, down only 12bp. Mortgage interest rates were largely unchanged for the week, remaining at historically low levels.

>> This Week’s Forecast

by Pat Hill | 0 Comments

Housing Market - Week of May 4, 2009

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INFO THAT HITS US WHERE WE LIVE CNBC's Jim Cramer recently interviewed Toll Brothers CEO Robert Toll and his take on the national housing market got a lot of play. The homebuilder said he see signs of a rebound in "80% of the country." He backs this up by reporting that "expressions of interest" ($1,000 refundable deposits) are up over last year.

Countering this positive news was another negative S&P/Case-Shiller home price index. Case-Shiller has been heavily criticized lately from experts who doubt whether limiting the data to 20 selected metro areas gives an accurate picture of price changes across the country. Many of these areas have been heavily affected by foreclosure sales. At least the latest Case-Shiller did NOT set a new record low – for the first time in 16 months!

Last Thursday it was reported the rate for 30-year fixed-rate conforming mortgages averaged 4.78% with an average 0.7 point. It's down over 1.6% from the peak in October, which adds up to a savings of around $212 per month on a $200,000 loan. It should be noted these rates and fees are for borrowers with 20% down payments and good credit ratings. Other loans carry higher rates and points.

>> Review of Last Week

BACK ON TRACK... The major stock market indexes went up again last week, as they did for six straight weeks until some minor slippage the week before. This was encouraging because there were a few fairly negative pieces of news, although positive indicators prevailed as the week wore on. The negatives started with Sunday's concerns over a swine flu outbreak, which stayed in the headlines throughout the week. Thankfully, there were only 331 worldwide cases confirmed by Friday.

Other off-putting news included Wednesday's advanced Q1 GDP reading of –6.1%, worse than expected. Thursday, Chrysler declared bankruptcy to ease its debt burden, though it seems poised for recovery with a deal that gives Fiat a big stake in the company. We also had reports that Bank of America and Citigroup may have to raise more capital based on their stress tests. Friday, the government said it would postpone publishing full stress test results until this Thursday.

The week's good news? April's ISM Manufacturing index surpassed expectations for the fourth month in a row! Some economists say this shows the contraction in manufacturing is quickly slowing and the overall economy is on the verge of recovery. This view was bolstered by a better than expected reading on manufacturing from the Chicago PMI. Consumer Confidence was well above estimates and the University of Michigan's consumer sentiment index also had a big boost for April. Some experts feel this shows Q1's increase in consumer spending will continue.

The Dow ended the week UP 1.7%, to 8212.41; the S&P 500 was UP 1.3%, to 877.52; and the NASDAQ went UP 1.5%, to 1719.20.

Inflation concerns and the stock market's resurgence all slowed demand in the bond market and drove prices down. So the benchmark 10-year Treasury's yield, which runs counter to price, inched up again, to 3.176%. In spite of this rise, mortgage rates on average are still at historically low levels.

>> This Week’s Forecast

HOUSES, BANKS, JOBS... We'll want to take note of today's March Pending Home Sales, look out for the Treasury's bank stress test results on Thursday, then catch the April employment report come Friday. The size of the decline in nonfarm payrolls and the unemployment rate will be looked at for signs of bottoming in the jobs market.

Corporate earnings reports will continue, with Kraft Foods, Cisco, Sprint Nextel and Walt Disney among the biggies announcing Q1 numbers.

by Pat Hill | 0 Comments

Housing Market Week of April 27, 2009

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INFO THAT HITS US WHERE WE LIVE  March Existing Home Sales came in last week down slightly, to a 4.57 million annual rate. But the number of homes sold was still 1.8% above January's lows. With the sales level in the same range for the past five months, many say sales have now stabilized and probably bottomed. In addition, the median sale price increased in March for the second month in a row – the biggest monthly jump since June 2005 (not seasonally adjusted). The months' supply edged up to 9.8 from 9.7, but that was all from the slightly slower sales pace for single-family homes. The raw inventory actually declined for all types of homes.

The Federal Housing Finance Agency (FHFA) also reported home purchase prices rose 0.7% in February for houses financed by conforming mortgages. This was the second month in a row prices rose, putting them up 1.7% for the last two months, the biggest gain since 2005.

Friday saw March New Home Sales come in better than expected, at a 356,000 annual rate. This was a small decline from February, but that was all because of the upward revision to February numbers, not any March slowing. Inventories continue falling, to 308,000, down 46.0% from their mid-2006 peak and at the lowest level since 2002.

>> Review of Last Week

MIXED MESSAGES... After six weeks on the rise, the major stock market indexes ended last week mixed, with the Dow and the S&P 500 down a tad but the NASDAQ still on the upswing, to the tune of 1.3%. These mixed performances were due to the mixed messages coming from both corporate and economic data.

Overall, the week's Q1 earnings reports weren't terrific, although many beat estimates – 80 S&P 500 companies came in better than expected, 40 were worse. The good guys included IBM, DuPont, Caterpillar, AT&T, Microsoft, Apple, eBay, Amazon.com and Ford. Investors were happy to see tech hanging in and some life left in the American auto industry. Those missing earnings forecasts included 3M, Boeing, Merck and Morgan Stanley, which had a larger than expected Q1 loss and cut its dividend. Another major bank announced better than expected earnings, but also rising credit loss provisions.

Then we got preliminary reports about the Treasury's stress tests of 19 big banks. It seems most should be considered well-capitalized, but there are no details yet, such as whether any of them failed. The results will be made public next Monday. New unemployment claims came in a little higher for the week, although they're averaging below March levels, which is hopeful. Finally, software giant Oracle said it would buy Sun Microsystems and PepsiCo will buy up some major bottlers. The week ended with a 119-point jump in the Dow on Friday, but that wasn't quite enough to give us a seventh straight week of gains in the index.

The Dow ended the week off just 0.7%, at 8076.29; the S&P 500 slid an even smaller 0.4%, to 866.23; but the NASDAQ actually ended UP 1.3%, to 1694.29.

The bond market saw our closely-watched Treasuries trading lower most of the week, thanks to excess supply and some inflation concerns. The benchmark 10-year Treasury's yield, which runs counter to price, inched up to 3.007%. Let's see if the Fed starts buying to get the price back up and the yield down. Fortunately, mortgage rates on average remain at historically low levels.

>> This Week’s Forecast

LISTENING TO THE FED... The Fed meets again this week and, while no one expects any change in their rock-bottom rate, we'll be eager to hear the policy statement on Wednesday. We'll also watch the advanced reading on Q1 GDP, March Personal Spending (PCE) and the Chicago PMI and ISM takes on manufacturing.

Corporate Q1 earnings reports will be energized by Chevron and Exxon Mobil, along with Pfizer, Procter & Gamble and Verizon.

by Pat Hill | 0 Comments

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Housing Market Week of April 20, 2009

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INFO THAT HITS US WHERE WE LIVE  Last week's March housing starts came in a little worse than expected – a 10.8% decline, to a 510,000 unit annual rate. And new building permits were down 9.0% for March, to an annual rate of 513,000 units.

But all of March's drop in starts was from multiple-family units. Single-family starts were in fact unchanged and have stayed above their January level for the last two months. Some observers feel that after peaking in early 2006 and then falling for three years, housing stats finally hit bottom in Q1 this year. They say the stage is now set for a major home building turnaround that should begin in late 2009 and make a real contribution to the economy in 2010 and 2011. Once excess inventory is sold off, growth in population and tear downs point to a rate of about 1.6 million starts a year – more than three times the current level! 

All this may be why a builder confidence index moved up 5 points in April to its highest level since October 2008. The National Association of Home Builders said the overall score was still low, but it was a clear improvement over the last five months. Actually, the April gain was the largest one-month rise since May 2003. And the segment of the index that measures builders' expectations for single-family home sales for the next six months rose 10 points over prior months. 

>> Review of Last Week

STILL HEADED IN THE RIGHT DIRECTION... Last week's stock market performance gave us the SIXTH straight week of stocks going UP, although the increases in the indexes were all smaller than before. But last week had some key economic and corporate earnings reports that could have sent things south. The fact that we were still up for the week was good news indeed.

Some of the negative drag on investors came from weaker Retail Sales data for March, particularly disappointing following two months of good news from this sector. We also had Industrial Production showing a slight decline. Finally, Housing Starts and Building Permits came in slightly lower than expected, although things weren't really so bad, as explained above. 

On the good side, we had encouraging news from the financials, who are expected to lead us out of this economic contraction. Goldman Sachs announced a $5 billion common stock offering, along with way better than expected Q1 revenues and earnings. We also had better than anticipated Q1 results from two other major banks. Intel beat expectations for earnings and revenue and said the bottom has been reached in the PC market. Google also beat earnings estimates and Consumer Sentiment came in better than expected to round out the week. As one analyst put it, things are far from perfect, but at least the good news is now outweighing the bad.

Investors appear to agree, as the Dow ended the week UP 0.6%, to 8131.33; the S&P 500 was UP 1.5%, to 869.60; and the NASDAQ ended UP 1.2%, to 1673.07.

Rising prices for stocks again saw falling prices in the bond market. The yield on the benchmark 10-year Treasury, which runs counter to price, inched up a bit, to 2.951%. This is still under the 3% threshold and mortgage rates on average dipped slightly during the week, remaining at historically low levels.

>> This Week’s Forecast

MORE HOUSING, MORE TECH... Two of our favorite economic reports wrap up the week, with Existing Home Sales on Thursday, followed by Friday's New Home Sales. Monday's LEI gives us an overall look at the economy and Friday's Durable Goods Orders should also be interesting to ponder.

Most importantly, we get quite a few key corporate earnings reports, with an emphasis on the tech sector. IBM, AT&T, Apple and Mircosoft will all share their Q1 numbers.

by Pat Hill | 0 Comments

Housing Market Week of April 12, 2009

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INFO THAT HITS US WHERE WE LIVE  The best housing news we've seen lately is that homes now are very very affordable. In fact, the National Association of Realtors reported that homes haven't been this affordable since they began calculating their Housing Affordability Index in 1970. This measures the degree to which a typical family can afford the mortgage payments on a typical home. When the median family income is the same as the income needed to qualify for a mortgage for the median priced home, the reading is 100. The preliminary Housing Affordability Index for February was 173.5, meaning the median family income is 73% higher than necessary to qualify for a loan on a median priced home. The highest previous number was 154.8, back in 1972.

This historic level of home affordability is the result of both historically low mortgage rates and reduced home prices. First time homebuyers also benefit from an $8,000 tax credit if they close on their purchase before December 1, 2009. If inflation happens, as some fear, buying now is particularly smart, as you wind up paying back your mortgage with devalued dollars. Bottom line, this is a terrific time to buy a home.

>> Review of Last Week

HERE COME THE BULLS... There may have been only four days of trading, but the market had no problem continuing its march UPWARD for the fifth week in a row! Many analysts are now saying this is NOT just another bear market rally that will eventually head back down to a new bottom. The fact is, we haven't seen a five-week gain like this since late in 2007. For those who see the stock market as a harbinger of the overall economy, these are truly hopeful times.

All is still economically far from perfect, so the week also had its disappointments. Alcoa kicked off the Q1 corporate earnings season reporting a loss, although it was less than many expected. New jobless claims for the week came in at 654,000, disappointing but lower than both last week's number and expectations. Finally, the euro-zone economy showed a 1.6% contraction for Q1.

Now for the good stuff. Wells Fargo preannounced record-breaking Q1 earnings around $3 billion on higher-than-expected $20 billion in revenues.There was even March retail sales data that showed the decline in consumer spending may be tapering off. We had smaller than expected decreases in same store sales from Target, Kohl's, JCPenney and Macy's. Bed Bath & Beyond came in with better-than-expected earnings. Some economists say the economy is recovering – that modifications to mark-to-market accounting and the Fed's easy money policies are finally doing it.

For the week, the Dow continued UP 0.8%, to 8038.38; the S&P 500 was UP 1.7%, to 856.56; and the NASDAQ ended UP 1.9%, to 1652.54.

True to form, rising prices for stocks saw falling prices in the bond market, which closed early on Thursday in a holiday shortened week. The yield on the benchmark 10-year Treasury, which runs counter to price, inched back up to 2.923%. This is still under the 3% threshold and mortgage rates are continuing at historically low levels for the moment.

>> This Week’s Forecast

FINANCIALS, CONSUMERS, INFLATION... This week features Q1 earnings from Goldman Sachs, JPMorgan Chase and Citigroup. We'll see if they can build on Wells Fargo's stunning numbers. Intel, Google, GE and Johnson & Johnson will also report.

For economic indicators, we'll get more readings on consumer spending with March retail sales, plus a check on inflation from the March CPI numbers.

by Pat Hill | 0 Comments

Housing Market for the Week of April 6, 2009

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INFO THAT HITS US WHERE WE LIVE  Well, well, well – last week saw yet another encouraging indicator for the housing market. Pending sales of existing homes, based on contracts signed in February, rose 2.1% over January. Compared to February 2008, the pending home sales index is down a scant 1.4%! The National Association of Realtors expects the median price of existing homes to decline just 5.1% this year, with sales up 1% over 2008. Next year, they see the median price going up 4.1% and sales on a 5.8% climb.

On top of that good news, the Federal Housing Finance Agency's House Price index had US home prices RISING a seasonally adjusted 1.7% from December to January. This is for homes bought with mortgages that fall within Fannie Mae and Freddie Mac's limits. This was interesting, as it followed the S&P/Case-Shiller Home Price Index which showed a 19% price drop in January compared to a year ago. What gives? Case-Shiller tracks only 20 metro areas, including several in the three or four states with the steepest price declines. In addition, critics point out that indexes like Case-Shiller, which rely on repeat sales, consistently overstate price declines because they include a higher percentage of distressed properties.

Finally, we can report the California housing market is showing signs of recovery. Low prices, combined with today's historically low mortgage rates, have created a level of affordability that is attracting buyers in droves. 600,000 homes were sold this February – 80% more than in February 2007. Agents in some markets see investors returning and the strong sales have left existing home inventories at 6.5 months, a normal market level that's now ahead of the rest of the country's 9.7-month supply!

>> Review of Last Week

UP AGAIN... The market boom continued last week as stocks gained for their fourth week in a row, reaching new seven-week highs, with the Nasdaq hitting its highest level in three months. Experts say the stock market recovers first, then the housing market, then the economy in general and finally the jobs market.

Investors began the week unhappy with the government's auto task force, which fired General Motor's CEO Rick Wagoner, then gave GM 60 days to come up with a better restructuring plan and Chrysler 30 days to cut a deal with Fiat. The big negative news was Friday's March employment report, which saw unemployment inch up to 8.5% with the loss of another 663,000 jobs. But these numbers were no worse than expected and investors know employment is a lagging indicator. 

Economic highs included durable goods orders up for the first time in six months and ISM Manufacturing also up. Add recent good news in housing, retail and factory orders, and many are saying the depth of the downturn is behind us. We aren't turned around yet, but some experts feel we will go no lower. Let's hope they're right. The best news came Thursday when the Financial Accounting Standards Board (FASB) voted to relax mark-to-market accounting rules. Now banks can value securities using the cash flows they generate. This should reduce banks' writedowns, freeing up their ability to lend, which should help housing, business and jobs. The G-20 meeting in London was neither a big success nor a big disappointment. The group agreed to $1.1 trillion in loans to support developing countries and international trade. 

For the week, the Dow continued UP a nice 3.1%, to 8017.59; the S&P 500 was UP 3.3%, to 842.50; and the NASDAQ ended UP 5.0%, to 1621.87.

Bonds ended the week with Treasury prices getting hammered a bit, but it wasn't as bad as it might have been. The yield on the benchmark 10-year Treasury, which runs counter to price, creeped up to 2.891%. But with the Fed's trillion dollar commitment to buy mortgage-backed securities to keep rates low, 30-year fixed rate conforming mortgages continue at historically low levels.

>> This Week’s Forecast

SHORT, MAYBE SWEET... The coming holiday-shortened week holds little economic news, but does start another earnings reporting season with Alcoa getting things going on Tuesday. Thursday's February Trade Balance report could be a focal point, as January showed a drop that could create concerns around our global economic growth. Bond markets close early Thursday and both stock and bond markets will be closed in observance of Good Friday.

by Pat Hill | 0 Comments

Housing Market for the week of March 30, 2009

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INFO THAT HITS US WHERE WE LIVE  Correction to this week's PowerTools newsletter: First-time homebuyers who purchase a home before December 1, 2009, will receive up to $8,000 in tax credit. People can claim the credit either on their 2008 tax returns or on their 2009 tax returns. Here’s a great article from the IRS for more information: www.irs.gov/article

Last week saw more unexpected good data on the housing market. February existing homes sales increased 5.1%, to a 4.72 million annual rate. Sales were up in all regions for both single-family homes and condos/co-ops. Plus, the Federal Housing Finance Agency reported home prices UP 1.7% for January. That puts them off just 10% from their April 2007 peak. The supply of existing homes stayed at 9.7 months, with the number of homes in inventory showing its first increase since July. Some observers feel sales have finally bottomed. Wednesday saw February new home sales UP 4.7% to a 337,000 annual rate. The supply fell to 12.2 months as inventories dropped to 325,000, their lowest level since 2002 and 43.0% below their mid-2006 peak.

Finally, mortgage applications were up for the week ending March 20. Although most of the activity was for refinances, applications for purchase mortgages were up a good 4.2%, according to the Mortgage Bankers Association. Freddie Mac's survey for the week ending March 26 reported 30-year fixed-rate mortgages averaged 4.85% with an average of 0.7 points. This was for conventional conforming mortgages with a 20% down payment and was the lowest rate since the survey began in 1971. Compared to last year's high rate of 6.63%, the current rate saves about $225 a month on a $200,000 mortgage, according to Freddie Mac.

>> Review of Last Week

UP AGAIN... The market boom continued, as the rally that started March 6 went for one more week, this time at a very nice 6% clip. The rise was fueled by the unexpectedly good housing data, plus Treasury Secretary Geithner's plan to set up a series of public-private investment funds to buy $500 billion to $1 trillion worth of troubled bank assets. The government is enticing the private sector to join in by taking on the bulk of the risk and offering subsidies. The world's largest bond fund said they'll go along with the program. Not bad for starters.

There's clearly been a change for the better in the economic data we've been getting. Indicators have come in above expectations the last few weeks. In addition to the housing numbers, the list includes retail sales, the Philly Fed Index (a manufacturing gauge) and durable goods. This bolsters the position of those economists who believe the recession is quickly losing steam and will probably be over by mid-year, way earlier than some expect. The President, in his prime time news conference Tuesday, commented on the economic situation: "We're beginning to see signs of progress."

For the week, the Dow shot UP 6.8%, to 7776.18; the S&P 500 was UP 6.2%, to 815.94; and the NASDAQ ended UP 6.0%, to 1545.20.

With stocks up, bond prices went down. But stocks ended the week on a down day Friday, so bond prices recovered a bit. The yield on the benchmark 10-year Treasury settled at 2.755%. This indicates mortgage rates should stay at their current attractive levels, which is just what the Fed wants to see. 

>> This Week’s Forecast

ACCOUNTING, THEN JOBS... This Thursday, April 2, the Financial Accounting Standards Board (FASB) will tell us whether they'll modify mark-to-market accounting. The hope is an analysis of cash flow can be used to value assets, so income-generating securities won't be marked down because of an accounting rule. The week ends with the March employment report. No one is expecting a change for the better just yet.

Economic indicators include the ISM Index, which measures national manufacturing. It went up a bit in February, so let's see if the rate of manufacturing contraction continues to slow. Tuesday is Chrysler and GM's deadline to show Congress how they figure to survive long term. Also April 2, world leaders meet in London for the G-20 Summit. Look for more resolve to fix the financial system, along with tougher regulation and oversight.

by Pat Hill | 0 Comments

Housing Market for the week of March 23, 2009

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INFO THAT HITS US WHERE WE LIVE  The best housing news came out of the Fed's meeting last Wednesday. To help the housing market by making sure mortgage rates remain at their current historically low levels, the Fed said they would purchase up to $1.25 trillion worth of mortgage-backed securities issued by Fannie Mae and Freddie Mac. This is $750 billion more than they've already pledged. Sunday on CBS's "60 Minutes", Chairman Ben Bernanke said that the Fed's buying of mortgage-related securities "seems to have brought down mortgage rates significantly. It allows people to refinance and to get out of high-rate mortgages." To help things in private credit markets, the Fed also committed to buy up to $300 billion worth of long-term Treasuries.

Mortgage rates certainly are at great levels. The average rate on 30-year fixed-rate mortgages is over one percentage point lower since the Fed announced its program to start buying agency mortgage-backed securities last November. Although the Fed made its latest moves to ensure rates stay low into the future, the media got all excited about the prospect of rates dropping even further. But it isn't clear what lenders will do – especially when demand picks up, as it already has. And some experts are concerned this huge expansion of the Fed's balance sheet (it's basically "printing" more money) will lead to inflation – and higher interest rates.

Tuesday, housing starts for February came in UP 22.2% to an annual rate of 583,000 units. Most of the boost came from multiple-family units, but single-family homes were also UP 1.1% – to 357,000 units per year. New building permits rose 3.0% for February to an annual rate of 547,000 units, with single-family permits UP 11.0%! Some experts feel these numbers may point to a home building turnaround that could begin late this year and help boost the economy in 2010 and 2011.

>> Review of Last Week

STAYING POSITIVE... After the prior week's rally, last week showed more modest stock market gains. Continuing to fuel the positive vibes were three encouraging economic factors. 1) Money appears to be flowing a little faster judging from the latest retail sales and housing starts. 2) Mark-to-market accounting reform seems to be on the way, which should give banks more capacity to lend. 3) The Fed is showing it's willing to throw a lot of money into the effort to fix the financial system and get us out of this recession. Incidentally, Chairman Bernanke also told "60 Minutes" he expected the recession to end in 2009 and he's confident about the US economy long term.

Everything of course wasn't rosy. Industrial Production was down slightly more than expected for February and was revised downward for January. Wednesday's Consumer Price Index (CPI) came in a little higher than forecast, inspiring some inflation concerns.

The positive news began with the nice jumps in housing starts and building permits covered above. These could also help improve revised forecasts for Q1 GDP. But the big news was the Fed's surprise announcement of its massive efforts to ease credit for consumers and small businesses. With the market gaining as much as 20% over its March 6 low, enough investors took profits to keep this week's gains modest.

The Dow inched UP 0.8% for the week, to 7278.38; the S&P 500 edged UP 1.6%, to 768.54; and the NASDAQ gained the most, moving UP 1.8%, to 1457.27.

The Fed's announcement that it would buy as much as $300 billion in 2-10-year Treasuries in the next six months sent prices up and yields down. After the announcement, the yield on the benchmark 10-year Treasury fell half a percentage point, its biggest daily slide since October 20, 1987. But the yield ended the week down about a quarter point, at 2.645%. With the Fed even more in the game to keep mortgage rates down, the rate situation should stay attractive to borrowers. 

>> This Week’s Forecast

MORE HOUSING, MORE FEDS... We get more about housing this week with Monday's February existing home sales and Wednesday's new home sales. Personal Consumption Expenditures (PCE) on Friday will show us how cautious consumers may still be.

Items of interest could continue to come from the Federal government. Tuesday, President Obama will devote a prime-time news conference to his budget and economic recovery plan. This will follow appearances in the House by Treasury Secretary Geithner and Fed Chairman Bernanke who will have to answer a few questions about the AIG rescue. Geithner will also testify Thursday on financial market regulation.

by Pat Hill | 0 Comments

Housing Market for the Week of March 16, 2009

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INFO THAT HITS US WHERE WE LIVE  Among last week's interesting tidbits of information about housing, Radar Logic reported transaction-count increases in 14 of 25 metro areas tracked in December 2008, compared to December 2007. They put these gains to improvements in home affordability and low mortgage rates, but cautioned that their numbers don't necessarily reflect total transaction volume in each area.

Meanwhile, the Federal Housing Finance Agency reported the price of the average home sale in Q4 of last year was only 8.2% lower compared to the year before. The National Association of Realtors chimed in with data showing the average home sales price down 9.4% from a 2006 peak. We all know that parts of the country have experienced serious price drops. But the fact that these national averages aren't so severe, indicates price declines haven't been that bad for most of the country.

Conforming mortgage rates fell again last week, according to FreddieMac's weekly survey. The rate for 30-year fixed-rate mortgages is hovering just above January's all-time low. In fact, conforming mortgage rates in the survey have only gone up and down about a quarter percent since the beginning of the year.

>> Review of Last Week

UP WE GO... After weeks of continual sliding, the market finally took off like a shot, posting its biggest weekly increase in months. This may not signal the start of a rebound for the market and the economy, but it could indicate a bottom, which is good. Bottoms show stabilization – that the contraction is slowing or has been stopped in some areas. Experts are saying things may go up and down on the way back up, but only time will tell if we're now at the bottom of this recession – and bear market.

Positive economic indicators for the week included a better-than-expected retail sales number for February. It was down just 0.1% overall, but taking out auto sales, retail was UP 0.7%, following a 1.7% GAIN in January. Consumer sentiment also came in a tick up for the month. Fear seems to be abating. On Friday, White House economic advisor Larry Summers said it was indeed encouraging to see signs of a rise in consumer spending.
 
Best of all was the encouraging financial news. Citigroup said it had a profit the first two months of the year and won't need more TARP money. JPMorgan was also profitable in January and February. Some economists see this as early evidence that monetary policy is having some traction. In Washington, Barney Frank, who chairs House Financial Services, said he thinks the SEC will soon reinstate the uptick rule, which would make it harder to short financial stocks.His committee also held its hearing on mark-to-market accounting and seems to favor temporarily suspending the rules. They gave SEC and FASB accountants three weeks to come back with a plan. This is positive news because many experts feel adjusting mark-to-market is vital to fixing the banking system. It should ease capital concerns at banks, giving them increased capacity to lend, which is central to the recovery.

The Dow zoomed UP for the week 9.0%, to 7223.98; the S&P 500 went UP 10.7%, to 756.55; and the NASDAQ almost matched it, going UP 10.6%, to 1431.50.

With stocks enjoying a great week, you'd expect bonds to get hammered, but things weren't so bad. In spite of China's reservations about Treasuries, the price of the benchmark 10-year Treasury dropped just a tad. So its yield, which runs counter to price, only inched up to 2.890%, still comfortably under the 3% threshold. This bodes well for mortgage rates continuing at attractive levels. 

>> This Week’s Forecast

THE FED MEETS AND MORE... Tuesday and Wednesday, the Federal Open Market Committee meets and no change is expected to the Fed Funds Rate. But the policy statement coming out of the meeting will be closely analyzed for indications of how the Fed may further support the financial system.

Economic indicators we want to look at include Housing Starts and Building Permits on Tuesday, plus the Consumer Price Index on Wednesday for a further check on inflation. We'll also have earnings from FedEx, General Mills, Nike and Oracle.

by Pat Hill | 0 Comments

Housing Market for the Week of March 9, 2009

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INFO THAT HITS US WHERE WE LIVE  Last Tuesday, the National Association of Realtors said their Pending Home Sales Index for January dropped 7.7% from December and was down 6.4% year-over-year. But an NAR index that tracks housing affordability rose to a record level in January. This was because the combination of mortgage rates, family income and home prices in January were "the most favorable since tracking began in 1970," according to the group.

The NAR also forecasted that existing home sales would rise 0.3% this year, then 5.8% in 2010. The median price would fall 4.9% this year, but rise 3.9% in 2010. New home sales would be down over 39%, with the slowdown in building and the need to trim inventory. But the median price for new homes would drop only 3% this year, then rise 4.2% in 2010. All these facts, figures and forecasts point to one thing. If people find good value and a good mortgage rate on a home they love, this is the year to buy.

Wednesday, the US Treasury released the guidelines for its Making Home Affordable programs. The Home Affordable Refinance program will help 4 to 5 million homeowners get into a fixed rate mortgage at today's lower rates, even though their homes have lost value. The Home Affordable Modification program will help 3 to 4 million at-risk homeowners avoid foreclosure by reducing their monthly mortgage payments. Both programs will help keep people in their homes and stabilize prices. I have a summary of the guidelines and I'm happy to help people through them.

>> Review of Last Week

ROUGH RIDE... It was another week when all the major stock market indexes took a bumpy trip down, with the S&P500 at its lowest level in 12 years. The reasons were familiar...concern about the financials and uncertainty about when things will turn around for the credit markets and the economy.

The week got started with big financial player AIG owning up to a big $61 billion Q4 loss. The US Treasury responded by saying it will provide another $30 billion if needed. We also had a couple of big banks cutting dividends to save capital (actually a rather rational move in today's environment). A bunch of retailers reported declining same-store sales for February, but Wal-Mart's same-store sales rose 5.1% and they raised their dividend! We wound up the week on a disappointing February jobs report, with the unemployment rate now at 8.1%, a tad higher than expected.

It wasn't that hard to spot positive signs, although neither Wall Streeters nor the media seemed to pay much attention. Consumer spending rose in January, as did personal income. In fact, after-tax, inflation-adjusted income has now gone up three straight months. No one thinks consumer spending will explode, but the worst may be over in that department. Meanwhile, the personal savings rate increased to 5% in January, its highest level since 1995.

For the week, the Dow fell 6.2%, to 6626.94; the S&P 500 went down 7.0%, to 683.38; and the NASDAQ slid 6.1%, to 1293.85.

This time around, the bad week in stocks gave us a good week in bonds, so the benchmark 10-year Treasury's price went up. Its yield, which runs counter to price, went back down below the 3% threshold, settling at 2.823%. The mortgage rate situation continues to be very very appealing. 

>> This Week’s Forecast

ALL EYES ON WASHINGTON... This Thursday the House Financial Services Committee will meet on mark-to-market accounting. Many analysts and industry groups feel that suspending mark-to-market accounting could ease capital concerns at banks. This would give them increased capacity to lend, which economists feel is key to our recovery. The cost to taxpayers? Nothing. The government suspended mark-to-market accounting in 1938 and did not reinstate it until right when this crisis began in late 2007. Hmmmmm...

Not much in the way of corporate earnings and just one significant economic report – Retail Sales on Thursday.

by Pat Hill | 0 Comments

Housing Market for the week of March 2, 2009

>> Home Base

INFO THAT HITS US WHERE WE LIVE  Last Wednesday, January existing home sales came in down 5.3%, to an annual rate of 4.49 million. The supply went to 9.6 months, but that was all because of the slower pace of sales. In fact, the raw inventory of both single family homes and condos/co-ops DECLINED. The inventory of existing homes has now been reduced by one million homes since its peak last July. 

Thursday, new single-family home sales came in at a 309,000 annual rate, a bit slower than expected. Because of this slow pace, inventory increased to 13.3 months. But the total inventory of unsold new homes has dropped dramatically – to 341,000 homes, down 40.2% from its record peak in 2006. The new homes inventory is now below the 355,000 average of the last 25 years. 

We also saw the Case-Shiller home price index down 2% for December and down 18.5% versus a year ago. The media jumps all over this index, but it focuses on homes in major metro areas, so it isn't a true average for the country. For a truer look at the overall situation, we might want to consider the Federal Housing Finance Agency (FHFA) numbers, which concentrate on homes with conforming mortgages. Sales of these homes showed a PRICE GAIN of 0.1% in December and only an 8.7% drop from a year ago. Some experts feel many areas of the country are close to or already have hit bottom.

>> Review of Last Week

STAYING ABOVE 7000...It wasn't a great week in the markets, with the major indexes slipping just over 4%. The Dow happily stayed above 7000, a psychological victory of sorts, since both the Dow and the S&P 500 finished at 11-year lows. The week began with a low Consumer Confidence reading and ended with Friday's revised Q4 GDP of –6.2%. This was bigger than predicted and the media jumped all over "the worst GDP reading in a quarter century." They were referring to Q1 1982 GDP, which was actually –6.4%, meaning we're still not as bad off as we were in the Reagan recession.

Real disposable personal income was up 3.4% in Q4, indicating people have money, they're just hesitant to spend it. Other positive news included the Chicago PMI (Purchasing Managers Index) coming in UP over last month. This forward-looking indicator is a good sign, as is University of Michigan Consumer Sentiment, which also came in better than expected. The most encouraging signs came from our leaders. Fed Chairman Ben Bernanke told Congress Tuesday there is a "reasonable prospect" the current recession will end this year and that 2010 will be a year of recovery. That evening, the President told a joint session of Congress, the nation and the world: "We will rebuild, we will recover and we will emerge stronger than before."

Efforts to fix the financial system included the announcement Wednesday of the administration's Capital Assessment Program. CAP will provide banks with capital in exchange for stock, if they go through a "stress test" to determine the need for those funds. Friday, the Treasury agreed to hike its stake in Citigroup to 36%.

The week saw the Dow fall 4.1%, to 7062.93; the S&P 500 went down 4.5%, to 735.09; and the NASDAQ slid 4.4%, to 1377.84.

The bad week in stocks was matched, uncharacteristically, by a bad week in bonds. Uncertainty about the cost of all the bailouts is weighing on prices. The price of the benchmark 10-year Treasury went down, so its yield, which runs counter to price, went up to 3.030%. Mortgage rates, however, remain at very attractive levels. 

>> This Week’s Forecast

GOT JOBS?... We'll find out the latest employment story in Friday's Jobs Report. Pending Home Sales will be the topic on Tuesday. AIG is supposed to announce quarterly earnings (no date yet confirmed), but no one's expecting to throw a party over that one. Other indicators will continue to scope out the economic situation.
 

>> The Week’s Economic Indicator Calendar

by Pat Hill | 0 Comments