MARKET RECAP
One of the more curious opening sentences in housing news this past week was, “Home prices pulled, at least temporarily, out of their downward spiral….” We say curious because most of the data over the past two months has shown steady month-over-month improvement in national median and average home prices.
The writer of that dour opening sentence was referring to the S&P/Case-Shiller home price index, which posted a 3.6-percent increase in the second quarter of 2011 compared to the first quarter. Year-over-year, the Case-Shiller index was mostly flat to slightly negative for the 20 metropolitan areas it covers. Then again, most market measures of home prices have been slightly down year-over-year, though most have posted month-over-month gains.
CoreLogic, for one, continues to show steady improvement in home prices. Its data show they ticked up 0.8 percent nationally in July compared to June. July was the fourth-consecutive month where home prices have increased in CoreLogic’s survey. In short, to say that home prices are being “pulled out of their downward spiral” is a bit melodramatic, if not disingenuous.
We don’t want to discount the notion that there is pricing pressure in the market. Slowing sales could persuade some sellers to discount. On that front, pending home sales declined 1.3 percent in July after a 2.4 percent jump the prior month. What’s more, expectations for closings for existing home sales are likely to be down in August, given the fact that a shrinking share of signings has made it to closing.
However, it’s worth noting that a prominent analyst at UBS, David Goldberg, upgraded several home builders, believing that the market for new homes has likely bottomed. We take that to mean new-home prices, which have also strung together a series of monthly gains, will at least continue to hold their own.
Of course, any predictions on prices and the housing outlook are predicated on the outlook for the economy. Minutes from the latest Federal Reserve Federal Open Market Committee (FOMC) meeting show heightened concern over lagging economic growth. While the meeting participants did not anticipate an economic downturn, several of them noted that with the recent slowdown in economic growth, the economy was more vulnerable to adverse shocks.
There is a lot of tentativeness and cautiousness in the financial markets, evinced in the US Treasury security market, where the 10-year Treasury note is yielding 2.2 percent. This security serves as a base for pricing mortgage-backed bonds and mortgage rates. In fact, the 30-year fixed-rate mortgage is being priced a little more than two percentage points above the 10-year note these days. Mortgages continue to post multi-decade lows, albeit in small increments.
| Economic Indicator |
Release Date and Time |
Consensus Estimate |
Analysis |
| Mortgage Applications | Wed., Sept. 7, 7:00 am, et |
None | Important. The surge in refinances has slowed, but purchases have shown some improvement. |
| Federal Reserve Beige Book | Wed., Sept. 7, 2:00 pm, et |
None | Moderately Important. The Fed is likely to reveal a greater willingness to provide additional monetary stimulus. |
| International Trade (July) |
Thurs., Sept. 8, 8:30 am, et |
$50.9 Billion (Deficit) | Moderately Important. Slowing global growth and a recent rise in the value of the dollar are crimping US exports. |
| Consumer Credit (July) |
Thurs., Sept. 8, 3:00 pm, et |
$9 Billion (Increase) | Important. The upward trend in consumer credit reflects a greater willingness for banks to lend. |
| Wholesale Trade (July) |
Fri., Sept. 9, 8:30 am, et |
0.5% (Increase) |
Moderately Important. Inventories have been increasing on lower consumer demand. |
|
Inflationary Embers
Last week we touched briefly on how expanding bank credit could ignite inflation. In short, increased lending increases the money supply, which can be inflationary. Recent data show that bank lending increased 8.2 percent in August, a visible sign that banks are more willing to extend credit. (Not extending credit has been one of the more vocal criticisms of banks over the past year.) This means that the large amount of money, around $2 trillion, the Federal Reserved pumped into the banking system following the financial crisis in 2008 is beginning to funnel into the economy. This tells us a couple things: one, economic activity isn’t as slow as many people think, and, two, that we could see a rise in producer and consumer prices in coming months. We’ve been fooled before into thinking the Fed’s monetary stimulus, which is basically adding money to bank reserves, would prove inflationary and thus move interest rates higher. We were, quite frankly, off the mark. This time, it is a little different, because banks didn’t lend on that money. Now, they are at least showing a willingness to lend more. So does this mean that we think mortgage rates are destined to move higher? The short answer is yes, but it must be qualified with we don’t know when. Predicting the direction of rates is one thing, predicting the time frame is another. We just think that the good value in mortgage rates today isn’t worth the risk of waiting for the possibility of more value tomorrow. |
Kurt Galitski
Meet Kurt Galitski - The Kurt Real Estate Group, your new best friend. Distinctive Strategies that Deliver Record-Setting Results. When you combine Kurt’s passion and knowledge of the real estate market, you really gain an appreciation for what makes Kurt different. But what truly sets him apart from the crowd are his 5 distinctive strategies and his property management… For Kurt, getting into real estate was not an accident, it was a deliberate and calculated decision to deliver a better experience to home buyers, sellers, and landlords that they have ever received before. Today, you could ask any one of hundreds of clients, read his Yelp reviews, or look at his track record of being featured in Orange Coast Magazine in excess of eight consecutive years and you too will say mission accomplished. www.KurtRealEstate.com www.KurtPropertyManagement.com 877-957-6677
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