Archives for July 2012

Can Real Estate rescue the economy?

Source: OC Register, July 27, 2012

Things are looking, more than relatively speaking, upbeat when it comes to numerous parts of the property game. Let’s take a peek at the progress in this key economic driver!

Home-buying: By any measure, U.S. house shopping was strong this spring — and has remained so in early summer. Look at sales of existing single-family houses, as measured by the National Association of Realtors. This count ran 4.5 percent higher this June than in 2011.Or ponder Data-Quick’s tracking of sales of all residences in 98 major cities showing that buying is up 12.4 percent in July vs. a year ago. And if you want a vision of what’s next, try the Realtors’ Pending Sales Index — tracking deals in the works. This metric, which hints at what closed sales will look like in two months or so, in June ran 9.5 percent higher than 2011.

Loan Rates: Could financing be any cheaper? This week’s Freddie Mac lender survey showed average 30-year fixed rate at another record low at 3.49 percent vs. 4.55 percent a year ago. For a borrower getting that average deal – and borrowing $417,000, the conforming mortgage limit – the drop’s meant a savings of $255 a month to a $1,870 payment. This trend, and huge price cuts since the crash, means nationwide housing affordability – by many measures – hasn’t been better. The National Association of Home Builders/Wells Fargo Housing Opportunity Index says 77.5 percent of homes sold in this year’s first quarter were affordable to families earning the national median income. The big catch? Getting a mortgage is tricky these days.

Home Pricing: By no means is anybody seeing go-go style appreciation despite improved buying patterns. But there are plenty of hints that housing values have bottomed. For example, the Zillow Home Value Index rose 0.2 percent in the second quarter vs. 2011 — first gain on an annual basis since 2007. And the Federal Housing Finance Agency¹s monthly House Price Index for May was up 3.7 percent vs. a year ago — fourth consecutive gain and the largest since 2006.

Foreclosures: The dark side is a tad rosier. Core-Logic said that in May completed U.S. foreclosures ran 18 percent lower than a year ago. Note: the pace of foreclosures if off 27 percent from the 2010 peak. This means roughly 1.4 million homes, or a supply equal to 3.4 percent of all residences with a mortgage, were in lender’s nationwide foreclosure inventory. That’s down 100,000 in a year. Whether this is true improvement, or just lender reluctance to act, is a question mark.

Homebuilding: The better real estate news convinced numerous developers it was time to build again. June’s U.S. new-home starts, by Commerce Department math, are up 42 percent in a year to the most activity since October 2008. It’s a key factor in overall U.S. construction spending for May running 7 percent above a year ago to its fastest pace since December 2009?

Apartment rents: Those looking for a rental are paying up. Job growth plus folks with enough financial confidence to leave parents and roommates are a winning combination for apartment owners. According to researchers at Reis Inc., the number of empty units is at an 11-year low — with only a 4.7 percent vacancy rate. As a result, landlords have the power to raise rents at a 2.2 percent annual rate nationally– and Reis found rents up in all of the 82 big markets it tracks. Tight supply and rent hikes show renter optimism – and help create to a boom let in new apartment construction.

Real estate jobs: Like the overall economy, construction-job growth — as an example — has been spotty. A steep pullback in public projects, due to government spending cuts, offset new private projects. In June, for example, just half the states had construction job gains, the Associated General Contractors of America found. California’s construction bosses added the most 27,200 — or a 5 percent jump — in the year. Nationwide, the construction trades added 14,000 workers in a year — or a 0.4 percent gain — to 5.5 million. The unemployment rate for construction workers fell to 12.8 percent, the lowest since 2008. (It was 20.1 percent rate in June 2010!) But the sad truth is many tradespeople have turned to other industries for work.

Investment returns: Commercial real estate continues to be a hot property, as investors choose the recovering industry as a way to boost returns in an era where bank accounts earn little and stock markets are volatile. By one measure — the FTSE NAREIT index of traded real estate investment trusts — commercial real estate values were literally sliced in half in the crash. Since that downturn, though, real estate trusts stormed back — essentially doubling in value from the start of 2009 through 2012’s first half. By another metric, Morningstar’s tracking of real estate mutual funds saw this group average 33 percent annual gains in the past three years — best returns in the fund industry. Clearly, some investors saw a real estate rebound coming – and profited handsomely.

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Costa Mesa Real Estate Week In Review

In This Issue

Last Week in Review: Home loan rates continue to reach record best levels, as uncertainty here and abroad grows.

Forecast for the Week: The second half of the week heats up, with news on the housing market, consumer sentiment, Gross Domestic Product and more.

View: Ever feel like you don’t have enough time to focus on important things at the office? Read—and share with your clients, friends, and colleagues—the great tip below.

Last Week in Review
They say that every cloud has a silver lining.  And despite a slew of disappointing economic news last week, home loan rates continue to reach record best levels. Read on for details.

 The majority of economic reports released last week added to the uncertainty about our economic outlook. Retail Sales fell more than expected while the NY State Manufacturing Index remains at relatively low levels. In addition, the National Association for Business Economics (NABE) reported that the outlook for job growth has fallen due to a weakening economy. The survey revealed that 23% on those polled in July think that US employment will rise over the next six months, down from 39% in April.

But the economic news wasn’t all negative. Inflation at the consumer level remained tame in July, while Housing Starts for June increased nearly 7% to 760,000. This marks the highest level for housing starts since October 2008. Since home builders don’t start a house unless they are fairly confident it will sell upon its completion, if not before, changes in the rate of housing starts can tell us a lot about demand for homes and the construction outlook.

In other important news last week, Fed Chairmen Ben Bernanke was on Capitol Hill delivering his semi-annual testimony before both the Senate and House. He confirmed that our economy is weak, uncertainty in Europe is threatening U.S. growth, and unemployment is stubbornly high. But perhaps more significant was what Bernanke didn’t say: There was no mention or hint of another round of Bond buying (known as Quantitative Easing or QE3) at the next Fed Meeting.

It’s important to remember that rumors or hints of QE3 could help Bonds (and thus home loan rates, which are tied to Mortgage Bonds), but once an official announcement is made, Bonds and home loan rates could suffer as Stocks would likely rally. However, the weak economic data here and the continued problems in Europe mean that investors will likely continue to see our Bonds as a safe haven for their money…helping home loan rates in the process.

The bottom line is that home loan rates continue to reach historic lows, making now a great time to purchase or refinance a home. Let me know if I can answer any questions at all for you or your clients.


Forecast for the Week

Although economic news this week is rather light, some key reports will be released…and they may impact the markets and home loan rates:

  • Economic news doesn’t begin until Wednesday with data on New Home Sales. Last week, there was some hope that the housing markets were bottoming after a solid Housing Starts report, but those hopes were quickly dashed after the weak Existing Home Sales numbers. So, the markets will be looking to see what this week reveals about the housing market.
  • Thursday we’ll see more housing news in the form of Pending Home Sales.
  • Weekly Initial Jobless Claims will be delivered as usual on Thursday and comes after a big rise in claims last week, which was due in part to seasonal abnormalities.
  • Durable Orders will also be reported on Thursday.
  • The government will release the first reading on second quarter Gross Domestic Product (GDP) on Friday and the report will be critical as to the outlook for the U.S. economy.
  • Finally, Consumer Sentiment for July will be released on Friday as well.

Remember: Weak economic news normally causes money to flow out of Stocks and into Bonds, helping Bonds and home loan rates improve, while strong economic news normally has the opposite result. The chart below shows Mortgage Backed Securities (MBS), which are the type of Bond that home loan rates are based on.

  When you see these Bond prices moving higher, it means home loan rates are improving — and when they are moving lower, home loan rates are getting worse.

To go one step further — a red “candle” means that MBS worsened during the day, while a green “candle” means MBS improved during the day. Depending on how dramatic the changes were on any given day, this can cause rate changes throughout the day, as well as on the rate sheets we start with each morning.

As you can see in the chart below, Bonds and home loan rates continue to improve. I’ll be watching closely to see what happens this week.

Chart: Fannie Mae 3.5% Mortgage Bond (Friday Jul 20, 2012)
Japanese Candlestick Chart
The Mortgage Market Guide View…
One Day = 1,440 Minutes

By Jason Womack, Author. Productivity Coach.

Schedule “think” time on your calendar.

Start with blocks of 15 minutes. I recommend you schedule five of these sessions over the next week. Consider starting with just one a day.

There are two goals for this activity:

    • Rarely do you get enough time to focus on one thing while you’re at work. To get better at what you do, you MUST practice focusing. I want you to be able to hold your concentration on one topic, idea or problem for extended periods of time. During these focus sessions, you may come up with a new or different solution just because you had “time to think.”
If you schedule just one 15-minute block of think time a day, you’ll be able to do it. (I’ve seen too many people try to block out an hour or two, only to have “something come up” that pulls them out for half or even all of that time.) 15 minutes…it’s short enough to find, and long enough to matter!

Economic Calendar for the Week of July 23 – July 27

Date ET Economic Report For Estimate Actual Prior Impact
Wed. July 25 10:00 New Home Sales Jun NA 369K Moderate
Thu. July 26 08:30 Jobless Claims (Initial) 7/21 NA NA Moderate
Thu. July 26 08:30 Durable Goods Orders Jun NA 1.3% Moderate
Thu. July 26 10:00 Pending Home Sales Jun NA 5.9% Moderate
Fri. July 27 08:30 Gross Domestic Product (GDP) Q2 NA 1.9% Moderate
Fri. July 27 08:30 Chain Deflator Q2 NA 2.0% Moderate
Fri. July 27 08:30 Consumer Sentiment Index (UoM) Jul NA 72.0 Moderate
The material contained in this newsletter is provided by a third party to real estate, financial services and other professionals only for their use and the use of their clients. The material provided is for informational and educational purposes only and should not be construed as investment and/or mortgage advice. Although the material is deemed to be accurate and reliable, we do not make any representations as to its accuracy or completeness and as a result, there is no guarantee it is without errors.
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