Bill Black CMP

November 17, 2009

What a short pause

All logic would have to say that the markets would pause after such a big run and Dow 10,000 seemed to be the ideal spot. Indeed, the markets have seesawed above and beyond the 10,000 mark, with a contraction of approximately 5.0% from top to bottom. But then an interesting thing happened. As soon as all the big economic numbers were released and digested, the markets hit the second week in November with all guns blazing. Now one strong week does not mean the rally is going to continue, but it is interesting that the markets would start moving positively so quickly after the weak employment numbers were released. Obviously, the markets are satisfied with a tepid recovery.

And why should the markets not be happy with a weaker recovery? There is a lot to like about the economy not gaining strength too quickly. For one, oil prices should remain subdued. Higher oil prices can make the recovery weaker. Also, rates should stay low. Low rates can support an economic recovery that is more sustainable. Finally, with the concern about government spending, inflation will be a threat. A slower recovery has the potential to hold off that threat indefinitely. Of course, the markets could have just been reacting to the good news that the tax credit for homeownership was extended and expanded. With low rates and housing prices, real estate is quite a bargain and a government subsidy will serve to boost demand as we go through the typically slow winter home-buying season. If demand runs high during the winter, the spring market could be very strong.

The Markets. Last week rates moved to their lowest level in five weeks. Freddie Mac announced that for the week ending November 12, 30-year fixed rates averaged 4.91%, down from 4.98% the week before. The average for 15-year fixed fell to 4.36%. Adjustables were also down with the average for one-year adjustables falling slightly to 4.46% and five-year adjustables decreasing to 4.29%. A year ago 30-year fixed rates were at 6.14%. “Rates eased further over the week, helping to promote an affordable home-purchase market and stimulate refinances,” said Frank Nothaft, Freddie Mac vice president and chief economist. “This comes at a time when house price declines are moderating and consumer demand for prime mortgages at commercial banks has picked up. The National Association of Realtors® reported that national median sales price of existing homes fell 11.2 percent in the third quarter relative to the same period last year. Moreover, almost 20 percent of the top metropolitan areas experienced positive annual growth, compared to only about 12 percent in the first quarter of this year.” 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 November 13, 2009

Most states continued to experience rising existing-home sales in the third quarter, with prices moderating in many metro areas, according to the latest survey by the National Association of Realtors®. Total state existing-home sales, including single-family and condo, increased 11.4 percent to a seasonally adjusted annual rate of 5.30 million units in the third quarter from 4.76 million units in the second quarter, and are now 5.9 percent above the 5.01 million-unit pace in the third quarter of 2008. Sales increased from the second quarter in 45 states and the District of Columbia; 28 states and D.C. saw double-digit gains. Year-over-year sales were higher in 32 states and D.C. Lawrence Yun, NAR chief economist, said the tax credit is a significant factor. “We can’t underestimate just how powerful a catalyst the first-time home buyer tax credit has been for the housing sector,” he said. “It’s given buyers the confidence they needed to get off the fence and take advantage of extremely affordable housing conditions. The buying conditions this year are the most favorable on record dating back to 1970, but the tax credit is allowing buyers to set aside any reservations about waiting for a better deal.” Source: National Association of Realtors®

Buyers of new homes can expect much healthier and more energy-efficient properties than they get if they buy an older home. Tom Molidor, president of Molidor Custom Builders in Clarendon Hills, Ill., recommends installing a high-efficiency furnace close to the part of the house the family uses the most, instead of putting it in the basement. A 3,000-square-foot home that is top-rated for energy efficiency can be heated in the greater Chicago area for less than $50 a month, estimates R.A. Faganel Builders. Other commonly included energy-friendly features include double- or triple-paned low-E windows that not only keep out cold air but also make homes quieter. Source: Chicago Tribune

One in 20 Americans say they plan to buy a home within the next year, and they’re most likely to be 34 years old or younger and living in the South or West, according to a survey released last week. Roughly a quarter of potential buyers said the No. 1 reason they would buy now is because prices appear to have bottomed out. That reason topped bargain-priced foreclosures, worries about rising interest rates and a wide selection of homes. The survey, conducted for Move.com, a real estate listings site, reveals how Americans are responding to a nascent and fragile housing recovery after three years of price declines. The percentage of buyers thinking of jumping into the market was down slightly from a March survey, but up about 1 point from a poll in June. Home prices rebounded this summer at an annualized pace of almost 7 percent, according to the Standard & Poor’s/Case-Shiller home price index. Source: Associated Press

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