Posts Tagged → Existing Home Sales
The Week Ahead
This Week unlike last week there are events and data points everyday for the bond and mortgage markets to consider. This is employment week with the March employment data on Friday, early expectations are for non-farm jobs to increase 185K with non-farm private jobs up 203K, the unemployment rate is expected unchanged at 8.9%. In the meantime Feb personal income and spending out on Monday, Mar consumer confidence on Tuesday, Thursday has weekly jobless claims, the Chicago purchasing mgrs index, Friday the ISM national manufacturing index.
Recent better than expected earnings reports and relaxing of concerns from Japan has boosted equity markets and interest rate markets are taking on a more negative technical pattern. We remain bearish for the outlook on rates, however we are not looking for rates to move substantially higher. The prime and only reason the bond and mortgage markets rallied recently was over safety moves on the Japanese nuclear problems.
Not only economic data this week, but Treasury borrowing. Tuesday $35B of 2 yr notes, Wednesday $35B of 5 yr notes and Thursday $29B of 7 yr notes. Recent auctions still seeing OK demand but not quite as strong as auctions last year. Debt problems in Europe (Portugal, Spain, Greece and Ireland get coverage in the media but are not having any noticeable impact on US bond markets.
Tuesday Trivia
Let’s take a look at recent developments:
First, you may have noticed that retail purchases improved in October. Consumer spending was up 0.4%, following a 0.3% rise in September. What we’ve long known is that we need a better employment situation and more retail sales to help develop more confidence among American consumers. Without those ingredients, the real estate market is very unlikely to improve. With them, added confidence inspires people to begin contemplating the purchase of a home, among other goods and services.
But there is a serious problem here. If consumers are suddenly spending more of their money, rather than paying down their indebtedness and rebuilding their savings, then they are meandering into a vulnerable position again. On the one hand, they are providing a short-term boost to the economy with their added purchases; on the other, they are denying themselves the long-term advantage of stronger personal financial profiles, which would support sustainable economic growth in the future.
The really good news, though, was that personal income grew in October by 0.5% (after a flat September), and the income growth was derived primarily from improvements to wages and salaries. In other words, consumer spending rose because consumers genuinely had more money to spend, and it looks like the increase in their income has the whiff of possible permanence to it. This even allowed the savings rate to rise from 5.6% to 5.7% in October.
Further, at the end of last week, we saw the number of new claims for unemployment insurance take a genuine dive, falling from 439,000 to 407,000 in the week ending November 20. This is usually pretty volatile data, so don’t count on it turning into a strong trend. This could also be seasonally influenced by temporary jobs obtained through the holiday season. Still, the news is good. And at the least, it can provide a bit of comfort in the face of the weak sales data for existing homes and new homes.
Meanwhile, the headlines in the financial press have been full of Ireland’s debt woes and the rather shocking state of the nation’s banks, which treated the real estate boom as a party they just couldn’t say no to and made loans they never would have contemplated only a year earlier.
Looking at the growing worries about Ireland—and Greece, Portugal, Spain and, face it, the euro itself—Brian Yelvington, the fixed-income strategist at Knight Capital, opined (in The Wall Street Journal), “I think that’s the market realization: that these are systemic problems that are going to need a systemic solution. This is not a one-off problem with an individual country.”
The truth in this statement is underscored by a careful look at Ireland’s woes. Banks built up huge debts that can no longer be serviced; the government agreed to nationalize those debts, so they are now the nation’s debts. Sound familiar?
The truth, it seems, is that this is no way to run an airline—or an economy. It’s “moral hazard be damned,” and it eats into the nation’s (and, over time, the world’s) ability to pull itself out of its debt dilemmas and into sustainable economic growth.
It is a political/economic system that didn’t work and that we are now trying to resolve by propping up the sources of the problem, sending in the foxes to repair the henhouses, rather than changing the system itself. This may be the most serious problem facing us today. Does our economy support all the people who are diligently participating in it, or are the people supposed to support the economy (and the few who still make billions from it) at the cost of their quality of life?
Overall, with all the uncertainty and anxiety in the world, we must all remember that tis the season to be jolly! Deal with it during the day and then when you get home, put it all behind you, give your significant other a hug and kiss, check in on the kids, and pat the dog (or cat) on the head! Remember, the people in our lives are what is important and the thing that we tend to take the most for granted. Happy holidays!
Market Update July 26th
As we head into another month end we continue to enjoy interest rates that have not been seen since the 1950′s! Just the other day I had the opportunity to quote a 15 year fixed rate loan (< $417,000) at an interest rate of 3.750% and a 1.000 point cost! Never in my 26 year career have I ever quoted any type of fixed instrument with a rate less than 4.000%! If you are a fence sitter and are waiting for the bottom of the market, take a sanity pill, jump off the fence, and lock in a rate TODAY. Rates may go a bit lower but the risk to the upside is far greater at this time. Don’t miss out on a great opportunity to take advantage of these rates combined with some very attractive home prices in the Bay Area.
If your interested in seeing a successful businessman’s view of the state of our administration and economy, you may be interested in giving this short video a view! Doing business in China is more stable and predictable than in the US?? Kind of causes you to take pause when you think about it.
This week Treasury will borrow a total of $104B, $4B less than a month ago, in 2 yr, 5 yr and 7 yr note offerings, the demand for the debt is expected to be good but we have noted some minor anomalies in the demand for US debt in recent auctions. That said, traders still expect the auctions will meet with decent demand; if however the demand ever weakens the rate markets will spike higher quickly.
This Week’s Economic Calendar:
Tuesday;
9:00 am Case/Shiller Home price index (+4.0% in May)
10:00 am July consumer confidence index (51.0 frm 52.9 in June)
1:00 pm $38B 2 yr note auction
Wednesday;
7:00 am Weekly MBA mortgage applications data
8:30 am June durable goods orders (+1.0%, ex transportation +0.5%
1:00 pm $37B 5 yr note auction
2:00 pm Fed Beige Book economic report
Thursday;
8:30 am weekly jobless claims (-4K to 460K; continuing claims 4.55 mil frm 4.49 mil)
1:00 $29B 7 yr note auction
Friday;
8:30 am Q2 advance GDP (+2.5% frm +2.7% in Q1)
8:30 Q2 employment cost index (+0.4%)
9:45 am July Chicago Purchasing Mgrs index (56.0 frm 59.1 in June)
9:55 am U. of Michigan consumer sentiment index (67.0 frm 66.5)
Existing Home Sales Flatten And Point To A Much Better Spring
As expected, Existing Home Sales fell in February, slipping 30,000 units versus January’s numbers. It’s the 4th straight month in which Existing Home Sales were lower, month-over-month.
An “existing” home is one that is previously owned and lived-in (i.e. not new construction).
Existing Home Sales peaked in November 2009, just as the First-Time Home Buyer Tax Credit was set to expire. Immediately thereafter, according to the National Association of Realtors®, monthly sales plunged 17 percent in December, then another 7 percent in January.
Comparatively, February’s dip is a modest 0.6 percent and is more in line with the pre-tax-credit Existing Home Sales trend. The real estate market is rediscovering its normal.
But “normal” may not last for long.
When the federal home buyer’s tax program was extended last year, the new rules stated that home buyers must be under contract for their new, respective homes on, or before, April 30, 2010 in order to claim up to $8,000 in federal money. That deadline is approaching and many markets are experiencing a surge in buyer traffic as April 30 nears.
The Existing Home Sales data doesn’t reflect this new demand, nor the number of new contracts written. It only accounts for home closings and, in February, closings were down.
For today’s buyers, the market looks favorable. The federal tax credit is in place, mortgage rates stubbornly stick near all-time lows, and home prices are staying in check.
Existing Home Sales should gain through March and April, pressuring home prices higher. And, by the time the press reports the gains, the best deals in the city may already be gone. Consider acting sooner rather than later.