When will the bottom hit- follow unemployment and you will see!

November 3, 2009

Now The Big Question

Well, we finally had a positive quarter of economic growth which was a bit stronger than expectations. We should be celebrating. Only, it is hard to celebrate with the backdrop of these numbers: 7.2 million jobs lost and 6.3 million foreclosures during this severe recession. No one thinks that the job losses and foreclosures will end because of one positive quarter. So the logical question is, where do we go from here? In this respect, this week’s employment numbers are even more important than last week’s snapshot of the economy which is a preliminary estimate of a quarter already behind us. Because employment is a "lagging" indicator, we are not looking for employment growth. However, the markets will be looking for improvement with regard to the number of jobs lost.

There is no doubt that the markets are contemplating the same question. We must ask whether the market contraction last week was a classic "sell on the news" scenario or recognition that we have seen our best quarter for the foreseeable future. The fact that Congress appears to be ready to extend the homebuyer tax credit is really good news in this regard. On the other hand, we know that one day these temporary fixes will be gone and the economy will have to stand on its own two feet. The markets have done a pretty good job predicting this positive quarter. Let us hope the struggle of the past few weeks does not represent a prediction of a one-shot deal because we need several positive quarters to declare the recession behind us.

The Markets. Rates moved up slightly again in the past week. Freddie Mac announced that for the week ending October 29, 30-year fixed rates averaged 5.03%, up from 5.00% the week before. The average for 15-year fixed rose to 4.46%. Adjustables were also up slightly with the average for one-year adjustables rising to 4.57% and five-year adjustables increasing to 4.42%. A year ago 30-year fixed rates were at 6.46%. "Rates for 30-year fixed loans have averaged just below 5 percent this year, which is the lowest 10-month average since the survey began in 1971," said Frank Nothaft, Freddie Mac vice president and chief economist. "As a result, refi activity has accounted for almost seven out of 10 applications on average this year, according to Freddie Mac’s survey. Economic data releases this week offered mixed signals as to the current state of the housing market. For example, total existing home sales jumped 9.4 percent to an annualized rate of 5.57 million homes in September, the strongest pace since July 2007, according to the National Association of Realtors. However, new home sales unexpectedly fell 3.6 percent to 402,000 houses, the weakest since June of this year. Nonetheless, stronger housing demand has lowered the inventory of unsold existing homes in September to the lowest since January of this year and for new homes the lowest since November 1982, which should help stabilize falling house prices." Rates indicated do not include fees and points and are provided for evidence of trends only. They should not be used for comparison purposes.

Current Indices For Adjustable Rate Mortgages
Updated October 30, 2009

Senators agreed last week to extend a popular tax credit for first-time homebuyers and to offer a reduced credit to some repeat buyers. The tax credit provides up to $8,000 to first-time homebuyers but is set to expire at the end of November. Senators agreed to extend the existing tax credit for first-time homebuyers while offering a reduced credit of up to $6,500 to repeat buyers who have owned their current homes for at least five years, said Regan Lachapelle, a spokeswoman for Senate Majority Leader Harry Reid, D-Nev. The tax credits would be available to homebuyers who sign sales agreements by the end of April. They would have until the end of June to close on their new homes, said a congressional aide, who spoke on condition of anonymity because he was not authorized to publicly discuss the deal. Senators were still negotiating the expansion of a separate tax credit that lets money-losing businesses get refunds for taxes paid in previous years, providing them with an immediate source of cash. Source: Associated Press

Home buyers are scaling back, according to a quarterly survey by the American Institute of Architects, choosing energy-saving amenities over recreational ones. Two-thirds of architects say their clients want better insulation, including double- and triple-glazed windows, water-saving devices, and solar panels. The most popular bonus room is a home office, with 46 percent of architects saying these rooms are gaining in popularity. The architects identified a sharp decline in the demand for high-end kitchens and baths and said that there was also less interest in game and media rooms and in-law suites. The AIA said residential billings, a leading indicator of activity, rose to 38 in the second quarter, up 20 points from the first quarter of 2009. Source: Reuters News

The American dream of homeownership is still a good bet, financial advisors say firmly. Despite the downturn in the last couple of years, homes have still appreciated an average of 4 percent a year since World War II. Plus, it’s a leveraged investment; a 10 percent down payment yields a 1,000 percent return if the price of the home doubles. There are also valuable intangibles. Owning a home provides independence, security, community, and a roof over the owner’s head. No one can say that about investing in stock. Source: Associated Press