Home Sales Up – Stocks Up – Bonds Down
First-time homebuyers who purchase a home before December 1, 2009, will receive up to $8,000 in tax credit. 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 ba d 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.
>> The Week’s Economic Indicator Calendar
Weaker than expected economic data tends to send bond prices up and interest rates down, while positive data points to lower bond prices and rising loan rates.
Economic Calendar for the Week of Mar 30 – Apr 03
|
Date |
Time (ET) |
Release |
For |
Consensus |
Prior |
Impact |
|
Tu |
09:00 |
Consumer Confidence |
Mar |
28.0 |
25.0 |
Moderate |
|
Tu |
09:45 |
Chicago PMI |
Mar |
34.0 |
34.2 |
HIGH |
|
W |
10:00 |
ISM Index |
Mar |
35.5 |
35.8 |
HIGH |
|
W |
10:00 |
Pending Home Sales |
Feb |
–1.6% |
–7.7% |
Moderate |
|
W |
10:30 |
Crude Inventories |
3/27 |
NA |
3300K |
Moderate |
|
Th |
08:30 |
Initial Jobless Claims |
3/28 |
NA |
652K |
Moderate |
|
F |
08:30 |
Average Workweek |
Mar |
33.3 |
33.3 |
HIGH |
|
F |
08:30 |
Hourly Earnings |
Mar |
0.2% |
0.2% |
HIGH |
|
F |
08:30 |
Nonfarm Payrolls |
Mar |
–657K |
–651K |
HIGH |
|
F |
08:30 |
Unemployment Rate |
Mar |
8.5% |
8.1% |
HIGH |
|
F |
10:00 |
ISM Services |
Mar |
41.9 |
41.6 |
Moderate |
>> Federal Reserve Watch
Forecasting Federal Reserve policy changes in coming months. The Fed made it pretty clear the week before last that they were going to keep the fed funds rate down for an extended period. The economists are believing them.
Current Fed Funds Rate: 0%–0.25%
|
After FOMC meeting on: |
Consensus |
|
Apr 29 |
0%–0.25% |
|
Jun 24 |
0%–0.25% |
|
Sept 23 |
0%–0.25% |
Odds of change from current policy:
|
After FOMC meeting on: |
Consensus |
|
Apr 29 |
1% |
|
Jun 24 |
3% |
|
Sept 23 |
5% |
This post information was provided by: Greg Brooks southwest area manager San Diego Mortgage Network (800) 287-8292 x 225 San Diego homes for sale
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The financial/housing crisis is far worse than we are aware of as yet, and it will get worse than it is once all the bail-out and freshly printed money has been distributed. Too much cheap money that was not always fairly earned got us into this mess, and the solution of more of the same will not help us recover.
Now it's toxic debt, some unknowable evil, and we're going to own it. We need the geniuses that created it to stay on at fortune-sized payscales. Washington is really looking out for us. Quick, another trillion or two.
Since trillions are being conjured up regularly, let's do what they say we can't: Hand money to real people to pay off their bills and debts. We're creating debt to pay debt anyway.
Money is a token of useful production. Financial engineers adjust that real money in their attempts to deal with credit and produce products that enable us to save or borrow, as we wish. As long as the engineered money is proportional to the whole, fine: but the past years have seen a disproportionate amount being constructed into houses of straw, arid landscapes and other items of apparent but worthless value. Now we are having to account for it, and until we do, we can expect more financial pain. Let's use this time to return to a system where real values matter, and in doing so make the politicians and financiers aware that we expect them to contribute real value too. San Diego real estate
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Futures contracts that trade on the Chicago Mercantile Exchange forecast a further decline of 14.5% by November 2010, after which home prices likely will begin to revive.
Joseph Davis, the chief economist of Vanguard Group, agrees. Even if the tax break were immediate, "it's not going to be very effective," he says. "It's a down-payment issue. The (credit) door has closed shut for many households. And negative home-price psychology has them on the sidelines."
A subsidy to help buyers meet down-payment thresholds "would have been the biggest bang for the buck in housing stimulus," Davis says.
Overall, Davis judges the massive steps the federal government is making to address the current economic malaise to be "necessary but not a sufficient condition for economic stabilization. And the reason is, they do not directly address the two sources of considerable stress in the economy: One is the issue of solvency in the banking sector, and the second front is housing, and they're both related."
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Existing-Home Sales Up – Home Prices Fall
The National Association of Realtors reported that existing home sales rose 5.1% in February. This was the largest percentage gain since July 2003. Sales of foreclosed properties or short sales accounted for about 45% of transactions last month.
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It's always the darkest before the dawn. The market still needs to adjust…..housing values need to continue to come down from their unsustainable peaks, leverage in the markets need to be reduced to manageable levels and America need to come to grips with their fiscal situation. Some adjustments are still happening and some are almost done. Some still need to be addressed. Fed Spends $750 billion to Lower Mortgage Rates
The Federal Open Market Committee (FOMC) informed the public this week that it will expand its dominating position in the mortgage-backed security (MBS) market, throwing an additional $750 billion there. Markets rallied on the news with Treasuries shedding up to 51 basis points.
Economists were up in arms about the Fed's measures. Stephen Stanley of RBS Greenwich Capital said via the WSJ blogs:
Bloomberg summed it up in the lead of their coverage:
By committing to buy Treasuries and double his purchases of mortgage debt, Federal Reserve Chairman Ben S. Bernanke signaled his determination to avoid a repeat of the Great Depression and his willingness to pump as much cash into the economy as needed to end the current crisis. San Diego real estate
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Yesterday, Fannie Mae severely tightened its lending criteria for condominiums. As the vast majority of mortgage loans are sold to Fannie Mae, this change will make it much more difficult to sell condominiums in many condo developments.
From the Wall Street Journal:
The government-backed mortgage-finance company stopped guaranteeing mortgages in condo buildings where fewer than 70% of the units have been sold, up from 51%. In addition, the company won’t back loans for sales in buildings where 15% of current owners are delinquent on association fees or where more than 10% of units are owned by a single entity.
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The Obama new policy blitzkrieg has many worried. Just look at decline in stocks since Jan. 20 for the opinion of the investing public.
What are they so worried about? The short list includes:
- Proposals for higher income taxes on the highest earners.
- Higher taxes on capital gains and dividends.
- A new tax on all securities trades.
- "Cram-down" legislation forcing banks to accept lower profits on mortgages.
- The Employee Free Choice Act, which would give unions an advantage over management.
- The carbon tax & the resulting very possible double digit increase in utility rates.
- Limits on oil drillers' tax breaks.
- Limits on agricultural subsidies.
- Smaller deductions on mortgage payments.
- Cuts in subsidies to independent student loan providers.
- Limits on drug pricing and Medicare rates.
Housing Gains
>> Home Base
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 mortga ge 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 a nd 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.
>> The Week’s Economic Indicator Calendar
Weaker than expected economic data tends to send bond prices up and interest rates down, while positive data points to lower bond prices and rising loan rates.
Economic Calendar for the Week of Mar 16 – Mar 20
|
Date |
Time (ET) |
Release |
For |
Consensus |
Prior |
Impact |
|
M |
10:30 |
NY Empire State Mfg Index |
Mar |
–32.0 |
–34.65 |
Moderate |
|
M |
09:15 |
Industrial Production |
Feb |
–1.2% |
–1.8% |
Moderate |
|
M |
09:15 |
Capacity Utilization |
Feb |
71.1% |
72.0% |
Moderate |
|
Tu |
08:30 |
Housing Starts |
Feb |
453K |
466K |
Moderate |
|
Tu |
08:30 |
Building Permits |
Feb |
510K |
531K |
Moderate |
|
Tu |
08:30 |
Producer Price Index (PPI) |
Feb |
0.4% |
0.8% |
Moderate |
|
Tu |
08:30 |
Core PPI |
Feb |
0.1% |
0.4% |
Moderate |
|
W |
08:30 |
Consumer Price Index (CPI) |
Feb |
0.3% |
0.3% |
HIGH |
|
W |
08:30 |
Core CPI |
Feb |
0.1% |
0.2% |
HIGH |
|
W |
10:30 |
Crude Inventories |
3/13 |
NA |
–749K |
Moderate |
|
W |
14:15 |
FOMC Rate Decision |
0.0-0.25% |
0.0-0.25% |
HIGH |
|
|
Th |
08:30 |
Initial Jobless Claims |
3/14 |
NA |
654K |
Moderate |
|
Th |
10:00 |
Leading Economic Indicators (LEI) Index |
Feb |
–0.6% |
0.4% |
Moderate |
|
Th |
10:00 |
Philadelphia Fed |
Mar |
–40.0 |
–41.3 |
HIGH |
>> Federal Reserve Watch
Forecasting Federal Reserve policy changes in coming months. Basically, no one is expecting the Fed to tighten monetary policy for some time to come. So no changes in the Fed funds rate are expected to come out of next week's meeting.
Current Fed Funds Rate: 0%–0.25%
|
After FOMC meeting on: |
Consensus |
|
Mar 18 |
0%–0.25% |
|
Apr 29 |
0%–0.25% |
|
Aug 12 |
0%–0.25% |
Odds of change from current policy:
|
After FOMC meeting on: |
Consensus |
|
Mar 18 |
1% |
|
Apr 29 |
5% |
|
Aug 12 |
10% |
This post information was provided by: Greg Brooks southwest area manager San Diego Mortgage Network (800) 287-8292 x 225 San Diego homes for sale
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