U.S. economy: Consumer confidence, house prices slide
Thursday, June 26, 2008
Brought to you by the CALIFORNIA ASSOCIATION OF REALTORS®
The Conference Board reported that its confidence index fell from 57.2 in May to 50.4 in June thanks to the housing downturn, higher unemployment and the rising cost of food and fuel. The last time the index was this low was in February 1992, when the economy was beginning to recover from the 1990-91 economic downturn.
The S&P/Case-Shiller index fell by 15.3 percent in April from the previous April, continuing March’s 14.4 percent year-over-year decline. However, eight of the 20 cities included in the index experienced month-over-month increases in prices. That shows cities “are beginning to sort themselves into the bad and not-so-bad,” said economics professor and index co-founder Karl Case. “It’s not like the whole market is collapsing.”
California cities included in the index continued to experience price declines: In Los Angeles, the index fell 2.2 percent from March to April and 32.1 percent year over year. San Diego was down 2.6 percent for the month and 22.4 percent compared with April 2007, and San Francisco declined 2.2 percent in April and was 22.1 percent below last April’s index.
To read the full story, please click here:
http://www.bloomberg.com/apps/news?pid=20601087&sid=aX6aDvhPpltY&refer=home
U.S. home slump harder to reverse than usual – Harvard
- Homebuyers remain on the sidelines as they face the highest mortgage rates in nine months and stricter lending criteria. The Federal Reserve?s efforts to keep interest rates low with the hope of stimulating buyer activity has largely fallen on deaf ears as potential homebuyers watch prices continue to slide in many areas of the nation courtesy of a large inventory of foreclosed properties for sale.
- Director Nicolas Retsinas observed that housing markets “historically recover only after the economy has entered a recession and a combination of falling mortgage interest rates and house prices have improved housing affordability. It will take longer to rebound given the unusually high levels of foreclosures and constrained credit markets. The slump in housing markets has not yet run its full course.”
- The report concludes: “…if the economy slips into a recession or job losses keep racking up, household growth and homeownership demand could fall even more.”
To read the full story, please click here:
http://www.reuters.com/article/marketsNews/idUSN2347133320080623?sp=true
California unemployment hits 6.8%
- California’s unemployment rate trails four other states: Michigan, Rhode Island, Alaska and Mississippi. Some 1.26 million Californians were unemployed in May, up 115,000 from April and 300,000 higher than in May 2007. The state posted a net loss of 10,900 jobs in May, primarily in construction. However, there were net gains in jobs in education and health services, natural resources and mining, information, leisure, and hospitality.
- The state’s employment situation could worsen later this year under the weight of state and local government budget cuts and a threatened actor’s strike.
- Economists say an employment recovery may be as long as a year off. That’s when the construction sector is expected to benefit from billions of dollars in public infrastructure projects approved by California voters.
To read the full story, please click here:
http://www.latimes.com/news/printedition/front/la-fi-caljobs21-2008jun21,0,5760427.story
Fannie, Freddie Fail to Relieve Housing by Shunning Jumbo Loans
- Jumbo loans of more than $417,000 accounted for about one-third of the mortgage market last year and represented a fifth of all mortgage applications in May, sources say. Since March, however, Fannie Mae has packaged only $24 million in jumbo loans into securities while Freddie Mac has packaged about $220 million. Meanwhile, the two companies invested more than $32.4 billion to buy their own securities, according to regulatory filings.
- The NATIONAL ASSOCIATION of REALTORS® (NAR) had projected the two companies would buy $150 billion in jumbo loans this year. UBS AG now predicts that total may be less than $74 billion. Freddie Mac has said it would buy between $10 billion and $15 billion in jumbo loans this year.
- The two companies own or guarantee almost half of the $12 trillion in U.S. residential mortgage debt. They experienced record losses totaling $11.8 billion over the last three quarters as mortgage defaults climbed to 30-year highs.
To read the full story, please click here:http://www.bloomberg.com/apps/news?pid=20601103&sid=a57eFJtEHSHI&refer=us
New report had optimistic prospects
Sunday, June 29, 2008 @ 2:23:00 PM
By Alexis McGee, Co-Founder and President of ForeclosureS.com is both architect and teacher of their exclusive investor learning programs and author of The ForeclosureS.com Guide books (Wiley 2007, 2008).
FREE! Don’t Miss Out – New Foreclosure Investor Webinar & Conference Call – “Make Honest and Ethical Profits Now!” LIVE Wednesday, June 18th, 2008, 6pm Pacific (9pm Eastern). Regularly $19 — NOW FREE! Hurry Space is LIMITED! MORE HERE.
A new report from Harvard just came out “The State of the Nations Housing 2008″ that I found very interesting. Let me share the highlights with you here. Starting with the good news — drastic production cuts and deep price discounts in 2005-2007 helped shrink the inventory of unsold new homes from a mid-2006 peak of more than 570,000 to less than 500,000 in early 2008. But the number of homes entering foreclosure nearly doubled to 1.3 million last year, and vacant homes for sale rose 46 percent over two years, to 2.12 million.
This report is more optimistic about medium- to long-term prospects. It estimates that unless there’s a serious, prolonged economic decline or a marked cutback in immigration, the nation will gain 14.4 million new households between 2010 and 2020, compared with 12.6 million between 1995 and 2005.
“Until the number of vacant for-sale units on the market falls enough to bring vacancy rates back down, house prices will remain under pressure,” the report says. “Working off the oversupply will require some combination of the following: housing starts fall even further; prices decline enough to bring out new bargain-seeking buyers; interest rates drop enough to improve affordability; job growth improves; consumer confidence returns; and mortgage credit again becomes more widely available.”
“At some point demand will bounce back,” Retsinas said in a press release announcing the release of the report. “Historically, housing markets recover only after the economy has entered a recession and a combination of falling mortgage interest rates and house prices have improved housing affordability.”
If the economy slips into a severe recession, the prolonged contraction could drive down the sustainable level of housing demand by slowing the loss of older units, forcing more households to double up, and reducing sales of second homes, the report said. But in the case of a mild downturn, which most economists expect, the fundamentals of demand are likely to drive a strong rebound in housing once prices bottom out and the economy begins to recover.
The boom-bust housing cycle has been reflected in the home-ownership rate. From 1994 to 2004, the home-ownership rate surged by five percentage points, peaking at 69 percent. Since then, home-ownership rates have fallen back for most groups, including a nearly two-point drop among black households and a 1.4-point drop among young households. The number of renter households increased by more than 2 million from 2004 to 2007, lowering the national home-ownership rate to 68.1 percent.
Once the oversupply of housing is worked off and home prices start to recover, the use of automated underwriting tools, a return to more traditional mortgage products, and the strength of underlying demand should put the number of homeowners back on the rise, the report said.
Although the short-term prospects for a recovery remain uncertain, in the long run the downturn is unlikely to slow down the creation of new households. The report projected that minority household growth among 35- to 64-year-olds should remain strong in 2010-2020, while the number of white middle-aged households will begin to decline after 2010 as baby boomers reach retirement age. People living alone are expected to account for 36 percent of household growth between 2010 and 2020, and 75 percent of the 5.3 million projected increase in single-person households will be among those 65 and older.
This is all really very helpful information — if you know how to use it to buy low and sell for profits in today market. That is why I spend time on this and more economic and housing data every month in my FREE Webinar and Conference Call for new foreclosure buyers “Make Honest and Ethical Foreclosure Profits NOW” on July 16th at 6pm Pacific. Register Early as we always fill up quickly! MORE HERE.
The Housing Crisis Is Over
By CYRIL MOULLE-BERTEAUXMay 6, 2008; The Wall Street Journal Page A23
The dire headlines coming fast and furious in the financial and popular press suggest that the housing crisis is intensifying. Yet it is very likely that April 2008 will mark the bottom of the U.S. housing market. Yes, the housing market is bottoming right now.
How can this be? For starters, a bottom does not mean that prices are about to return to the heady days of 2005. That probably won’t happen for another 15 years. It just means that the trend is no longer getting worse, which is the critical factor.
Most people forget that the current housing bust is nearly three years old. Home sales peaked in July 2005. New home sales are down a staggering 63% from peak levels of 1.4 million. Housing starts have fallen more than 50% and, adjusted for population growth, are back to the trough levels of 1982.
Furthermore, residential construction is close to 15-year lows at 3.8% of GDP; by the fourth quarter of this year, it will probably hit the lowest level ever. So what’s going to stop the housing decline? Very simply, the same thing that caused the bust: affordability.
The boom made housing unaffordable for many American families, especially first-time home buyers. During the 1990s and early 2000s, it took 19% of average monthly income to service a conforming mortgage on the average home purchased. By 2005 and 2006, it was absorbing 25% of monthly income. For first time buyers, it went from 29% of income to 37%. That just proved to be too much. Read Full Story
Legislation to help homeowners avoid foreclosure
The U.S. Senate said it has agreed on legislation to help homeowners avoid foreclosure by creating an affordable housing fund that will enable Fannie Mae and Freddie Mac to offer about $500 billion in foreclosure rescue funding in the program’s first year. Observers expressed optimism that the Bush administration will support the effort because it does not involve direct funding by taxpayers. The Senate proposal would tighten regulation of Fannie Mae and Freddie Mac and create a new regulator, the Federal Housing Finance Agency, which would be empowered to take action in the event the two quasi-government companies experience future liquidity problems.
MAKING SENSE OF THE STORY FOR CONSUMERS
Earlier this month, the House approved a similar bill. Under both plans, lenders would be allowed to limit their foreclosure losses by reducing the principal balance of loans to homeowners at risk of default and foreclosure. The primary beneficiaries would be homeowners with certain kinds of high-cost adjustable rate mortgages, who would be allowed to refinance to a more stable fixed-rate mortgage insured by the Federal Housing Administration.
Under the House bill, it is estimated that as many as 500,000 mortgages may be refinanced over the next five years at a cost to taxpayers of $2.7 billion. The Senate version, which would help the same number of borrowers, shortens the plan to three years and reduces the cost to about $500 million, with costs to come from a new Affordable Housing Fund that would collect about half a cent on every dollar in mortgages purchased in the secondary market by Fannie Mae and Freddie Mac.
The bill also would set a new Fannie Mae/Freddie Mac conforming loan limit of approximately $550,000 in high-cost markets, up from the current $417,000 limit. The limit has been temporarily increased to $729,250 in the most expensive markets as part of February’s economic stimulus package.
To read the full story, please click here:
http://www.nytimes.com/2008/05/20/business/20housing.html?_r=1&th&emc=th&oref=slogin
Mortgage Market Review
Provided to you Exclusively by President of The OCD Group Inc. Ernest Tepman
Last Week in Review
“TALENT WITHOUT DISCIPLINE IS LIKE AN OCTOPUS ON ROLLER SKATES. THERE’S PLENTY OF MOVEMENT, BUT YOU NEVER KNOW IF IT’S GOING TO BE FORWARD, BACKWARD, OR SIDEWAYS.” H Jackson Brown Jr. And just like that strange visual of an octopus on skates, so goes the volatile Bond market in recent days – and last week, Bonds and home loan rates skated around, but ultimately closed out the week very close to where they had begun.
Bonds and home loan rates ended the week on a sour note, but had spent the early part of the week moving sideways and slightly higher on a blend of mixed economic news and action in the Stock market. Grim news arrived from insurance giant American International Group (AIG), who reported an enormous first-quarter loss of $7.81 Billion or $3.09 a share, compared with earnings of $4.13 Billion just a year ago. The important part of this loss is due to write-downs on Mortgage Bonds, which tells us that the credit crisis is not yet entirely behind us. On these negative headlines, Stocks moved lower and money flowed over into Bonds, helping home loan rates improve.
By Thursday, Bonds were looking good and holding their ground above several floors of technical support, as the weekly Initial Jobless Claims numbers were reported at 365,000, slightly below expectations of 375,000. The more closely watched four-week average of Claims edged higher to 367,500. This not-so-hot read on the labor market helped Bonds and home loan rates continue to improve.
But then on Friday, Bonds gave back some gains on news of oil hitting $126 per barrel – and the inflationary effects of high oil prices is bad news for both Stocks and Bonds. Oil prices are reaching exceptionally high levels, and may get higher still. Read on for where oil prices are forecast to go in the future – and what it means for home loan rates.
AND IT’S NOT JUST FILLING UP THE TANK WHERE YOU’RE SEEING PRICE INCREASES…IT’S WHEN FILLING UP YOUR BELLY AS WELL! THAT’S RIGHT, FOOD AND DRINK PRICES ARE ON THE RISE IN A BIG WAY. CHECK OUT THIS WEEK’S MORTGAGE MARKET VIEW FOR SOME MONEY-SAVING TIPS!
Forecast for the Week
After last week’s thin economic calendar, where Stock market action and technical factors had a big impact on Bonds and home loan rates, this coming week brings a much juicier economic report agenda.
Retail Sales for April will be reported on Tuesday, followed by Wednesday’s Consumer Price Index (CPI). This widely watched measure of consumer inflation will take special significance, now that the Fed has signaled their current rate cutting cycle may be at an end. On Thursday comes a read on the new construction housing market, with Housing Starts and Building Permits. We will have to see if these reports can keep Bonds above their 50- and 100-Day Moving Averages…as seen in the chart below. If the reports are economically weak or negative, Bond prices and home loan rates should hold their ground, and perhaps even find some improvement.
Remember when Bond prices move higher, home loan rates move lower…and vice versa. And right now, there’s an important story breaking that will be very important to stay tuned in to. Last Friday, oil prices reached a lofty $126 a barrel, and Goldman Sachs is forecasting that black gold could rise even higher, perhaps as high as $150 – $200 a barrel in the next twelve months. If they are right, the inflationary effects of high oil prices could pressure Bond prices to move lower, causing home loan rates to move higher. This will be a story to watch carefully in the days and months ahead.
The Mortgage Market View…
RISING PRICES NOT JUST AT THE GAS PUMP…
If you’ve noticed your grocery bill getting bigger lately, you’re not alone – and it’s likely not because you’re eating more. According to Rising Food Prices: Policy Options and World Bank Response, global wheat prices have increased a whopping 181% over the past three years – and overall, food prices have increased by 83%!
Concerned? You’re not alone. A recent poll showed that 73% of consumers cite higher grocery bills as a concern; with nearly half saying food inflation has caused a hardship for their households. In fact, food prices ranked just below record-high gasoline prices on the list of things people are worried about.
According to Gregory Karp, author of Living Rich by Spending Smart, here are three simple ways you can save when it comes to food and drink prices:
Time your grocery shopping. With the exception of milk, eggs, and bread, most grocery store products are put on sale at least once every 12 weeks, as Karp notes, often for “20%-30% their usual price.” So instead of buying what you need every week or two, stock up on non-perishables when they go on sale. It may take a little planning ahead on your part, but the annual savings is substantial. As Karp writes, “The average American family of four spends about $8,500 on groceries each year. Trimming that bill by 20% saves $1,700.”
Make eating out a special treat. Enjoying a nice meal out is always a fun thing to do, so let it be just that, a fun thing to do rather than a solution for being too tired or too rushed to cook. When you do have the time and energy to cook, make two or three times the amount and freeze the extras. Then, when you’re rushed, a home-cooked (and probably healthier) meal will be waiting in your freezer, and will likely take less time to reheat than a night out or take-out delivery. And you will save more than time: According to Karp, “A restaurant meal for two costs $30 even at inexpensive chain restaurants. Home-cooked meals typically cost half as much, if not less. Convert two restaurant trips into two frozen homemade dinners each month, and you will save $360 per year.”
Don’t buy bottled water. Believe it or not, recent tests have shown that bottled water and tap water are pretty equal when it comes to safety and taste. For example, ABC News tested New York City tap water and bottled water for bacteria and found no difference in purity. Plus, there are environmental benefits of using less plastic. Karp estimates that people who drink one $6 case of bottled water each week can save $311 per year if they stop buying bottled water. He notes that “tap water costs five cents per gallon, or less than two cents per equivalent case – about $1 for the year.”
Hey, if you eat…rising food prices impact you. Use the above tips and suggestions to help minimize your concerns about rising food prices, and stay healthy and smart.
The Week’s Economic Indicator Calendar
Remember, as a general rule, weaker than expected economic data is good for rates, while positive data causes rates to rise.
Ernest Tepman
President
The OCD Group Inc.
Los Angeles: 800-963-4623
San Diego: 877-863-4623
E-Mail: marketupdate@theocdgroup.com
The Housing Crisis Is Over
From The Wall Street Journal
By CYRIL MOULLE-BERTEAUX May 6, 2008; Page A23
The dire headlines coming fast and furious in the financial and popular press suggest that the housing crisis is intensifying. Yet it is very likely that April 2008 will mark the bottom of the U.S. housing market. Yes, the housing market is bottoming right now.
How can this be? For starters, a bottom does not mean that prices are about to return to the heady days of 2005. That probably won’t happen for another 15 years. It just means that the trend is no longer getting worse, which is the critical factor.
Most people forget that the current housing bust is nearly three years old. Home sales peaked in July 2005. New home sales are down a staggering 63% from peak levels of 1.4 million. Housing starts have fallen more than 50% and, adjusted for population growth, are back to the trough levels of 1982.
Furthermore, residential construction is close to 15-year lows at 3.8% of GDP; by the fourth quarter of this year, it will probably hit the lowest level ever. So what’s going to stop the housing decline? Very simply, the same thing that caused the bust: affordability.
The boom made housing unaffordable for many American families, especially first-time home buyers. During the 1990s and early 2000s, it took 19% of average monthly income to service a conforming mortgage on the average home purchased. By 2005 and 2006, it was absorbing 25% of monthly income. For first time buyers, it went from 29% of income to 37%. That just proved to be too much.
Prices got so high that people who intended to actually live in the houses they purchased (as opposed to speculators) stopped buying. This caused the bubble to burst.
Since then, house prices have fallen 10%-15%, while incomes have kept growing (albeit more slowly recently) and mortgage rates have come down 70 basis points from their highs. As a result, it now takes 19% of monthly income for the average home buyer, and 31% of monthly income for the first-time home buyer, to purchase a house. In other words, homes on average are back to being as affordable as during the best of times in the 1990s. Numerous households that had been priced out of the market can now afford to get in.
The next question is: Even if home sales pick up, how can home prices stop falling with so many houses vacant and unsold? The flip but true answer: because they always do.
In the past five major housing market corrections (and there were some big ones, such as in the early 1980s when home sales also fell by 50%-60% and prices fell 12%-15% in real terms), every time home sales bottomed, the pace of house-price declines halved within one or two months.
The explanation is that by the time home sales stop declining, inventories of unsold homes have usually already started falling in absolute terms and begin to peak out in “months of supply” terms. That’s the case right now: New home inventories peaked at 598,000 homes in July 2006, and stand at 482,000 homes as of the end of March. This inventory is equivalent to 11 months of supply, a 25-year high – but it is similar to 1974, 1982 and 1991 levels, which saw a subsequent slowing in home-price declines within the next six months.
Inventories are declining because construction activity has been falling for such a long time that home completions are now just about undershooting new home sales. In a few months, completions of new homes for sale could be undershooting new home sales by 50,000-100,000 annually.
Inventories will drop even faster to 400,000 – or seven months of supply – by the end of 2008. This shift in inventories will have a significant impact on prices, although house prices won’t stop falling entirely until inventories reach five months of supply sometime in 2009. A five-month supply has historically signaled tightness in the housing market.
Many pundits claim that house prices need to fall another 30% to bring them back in line with where they’ve been historically. This is usually based on an analysis of house prices adjusted for inflation: Real house prices are 30% above their 40-year, inflation-adjusted average, so they must fall 30%. This simplistic analysis is appealing on the surface, but is flawed for a variety of reasons.
Most importantly, it neglects the fact that a great majority of Americans buy their houses with mortgages. And if one buys a house with a mortgage, the most important factor in deciding what to pay for the house is how much of one’s income is required to be able to make the mortgage payments on the house. Today the rate on a 30-year, fixed-rate mortgage is 5.7%. Back in 1981, the rate hit 18.5%. Comparing today’s house prices to the 1970s or 1980s, when mortgage rates were stratospheric, is misguided and misleading.
This is all good news for the broader economy. The housing bust has been subtracting a full percentage point from GDP for almost two years now, which is very large for a sector that represents less than 5% of economic activity.
When the rate of house-price declines halves, there will be a wholesale shift in markets’ perceptions. All of a sudden, the expected value of the collateral (i.e. houses) for much of the lending that went on for the past decade will change. Right now, when valuing the collateral, market participants including banks are extrapolating the current pace of house price declines for another two to three years; this has a significant impact on the amount of delinquencies, foreclosures and credit losses that lenders are expected to face.
More home sales and smaller price declines means fewer homeowners will be underwater on their mortgages. They will thus have less incentive to walk away and opt for foreclosure.
A milder house-price decline scenario could lead to increases in the market value of a lot of the securitized mortgages that have been responsible for $300 billion of write-downs in the past year. Even if write-backs do not occur, stabilizing collateral values will have a huge impact on the markets’ perception of risk related to housing, the financial system, and the economy.
We are of course experiencing a serious housing bust, with serious economic consequences that are still unfolding. The odds are that the reverberations will lead to subtrend growth for a couple of years. Nonetheless, housing led us into this credit crisis and this recession. It is likely to lead us out. And that process is underway, right now.
