20. November 2008 by Ana Connell.

Image by Getty Images via DaylifeThe National Association of Home Builders issues a monthly survey to it’s members where they are asked to rate the economy and general market conditions.   The housing market index is a weighted average of present sales of new homes, sale of new homes expected in the next six months, and traffic of prospective buyers in new homes.

Home builders are having an extremely difficult time this recession, reflected in the national home builders’ housing market index which plummeted to 9 in November, under October’s 14 which had until now been the record low.

Data on new and existing home sales for October will be released at the end of the month and so far, including this report and the pending home sales index posted earlier in the month, things point to a reversal of September’s higher numbers.

Declining home prices tied to foreclosure and short sales and swelling supply are apparently not yet attracting buyers in many areas.  The credit squeeze is still an issue for many buyers.

In the Burbank/San Fernando Valley real estate area I have seen alot of activity and multiple offers in the200k-400k range.   There are qualified buyers and investors out there that will bid on properties, if the price is right.  Lots of questions remain, including whether the banks will work with home owners facing foreclosures and short sales.

We also need to factor in the length of the current credit squeeze and the employment situation for the Los Angeles area.  If all of these factors align positively then we’ll start to come out of the current market condition, either way we’re in for a prolonged recovery, it’s just a question of how fast we can come out of it.

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26. September 2008 by Ana Connell.

• Washington Mutual’s branch system and deposits bought by JP Morgan after regulators seized the savings and loan.  This now represents the largest bank failure in U.S. history. (This happened after the close of business)
  

• Weekly initial jobless claims  jumped 32,000 to a seven-year high of 493,000.

• Durable goods orders fell 4.5% in August, well below the estimate of a 1.9% decline.

• New home sales  fell 11.5% in August to an annual rate of 460,000, short of the estimate of a 1.0% decline to 510,000. The supply of homes rose from 10.3 months to 10.9 months.
• Existing Home Sales were down in August following a gain in July as tight mortgage credit was blamed on the slow down. Nationally, existing-home sales declined 2.2%.
  

It looks like further negotiations are needed to come to an agreement on how to handle this mess as the meeting/photo op at the White House today was unsuccessful in building a consensus.  Secretary Paulson provided a 2 1/2 page outline of what he and Chairman Bernanke would like to do, which included little to no oversight, no accountability and a $700 billion price tag.

Congress is asking for:

• Legislation to help homeowners avoid foreclosure;
• limiting compensation to executives of troubled firms receiving assistance, ie, no golden parachutes;
• greater oversight than the limited bi-annual reporting requested in the current proposal;
• giving taxpayers an equity stake in companies;
• decreasing the timeframe for the Treasury workout from two years to one; and
• limiting the initial outlay followed by a reassessment early next year prior to providing additional funds.
  

Much critical thinking and brainstorming will be needed to solve this mess.

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26. July 2008 by Ana Connell.

• Stocks finished a tough week! The Dow finished 1.1% lower this week at 11,371. The decline was led by financial institutions, which posted their worst drop in 8 years and home builders. The amount of writedowns due to the mortgage mess continues and based on what analysts are saying, we’re not out of the woods yet.

• Washington Mutual shares declined a staggering 31% in the last two days, just to an example of the carnage out there. One positive note on all this is that those home buyers looking to purchase a foreclosure may have more to choose from soon in addition to the current supply.

• Existing home sales for June were down 2.6% . What’s troubling is that although the median price of a home fell 6.1%, inventories were up to an 11.1 month supply signaling that the housing market is still struggling. Tight lending standards and slightly higher mortgage rates are making things a bit challenging for home buyers.

• Jobless claims were up, in line with recessionary scenarios, even though overall the consensus is that we are not in a recession.

• The Federal Reserve’s Beige Book report for the latest six-week period came out and it signaled that the economy is increasingly weak across most of the U.S. All 12 districts reported slower home sales, continuing big inventories and falling home prices.

New York and Chicago also reported that buyers had increasing difficulty getting mortgage financing. The survey said tighter credit standards are hurting commercial real-estate activity.

• The House and Senate approved a sweeping housing bill Wednesday that would provide tax credits of up to $7,500 for first-time home buyers and help an estimated 400,000 strapped homeowners avoid foreclosure. President Bush is expected to sign the bill, which he had previously threatened to veto due to the $3.9B in block grant monies to help local communities. The Treasury Department would have the ability to extend Fannie Mae and Freddie Mac an unlimited line of credit and buy their stock.

The Congressional Budget Office estimates the program would cover about 400,000 homeowners with mortgages totaling $68B.The bill includes:

–A $7,500 tax credit for first-time home buyers.
–A $500 to $1,000 deduction for 2008 property taxes for people who don’t itemize deductions on their tax returns.
–Higher limits, up to $625,000, on mortgages insured through Fannie and Freddie. A temporary limit of $729,750 until Dec. 31 would remain in place.

• U.S. foreclosure filings more than doubled in the second quarter from last year. RealtyTrac reported that one in every 171 households was foreclosed on, received a default notice or was warned of a pending auction. That represents an increase of 121 percent from a year earlier and 14 percent from the first quarter. Almost 740,000 properties were in some stage of foreclosure, the most since the Irvine, California-based data company began reporting in January 2005.

• Sales of new homes fell 0.6 percent to a 530,000 pace from 533,000 in May, a revised higher reading than originally reported.

• 1:16 a.m. in New York Stock Exchange composite trading. The shares have lost 43 percent of their value in the past 12 months.

• Bonds…2 year 2.70%, 5 yr. 3.44% and the 10 yr. 4.10%.

• Crude oil closed at $123.26 per barrel as it continued it’s correction.

• 30-Year Fixed Jumbo average came in at 6.39%.

Here in Burbank and the San Fernando Valley we are experiencing pockets of good news, but overall it’s not an optimal situation. Foreclosures are up and continue to challenge current inventories. Expect things to continue this path until next year.

The Economic Week Ahead:

• Consumer Confidence, (Tuesday)

• MBA Purchase Applications (Wednesday)

• Jobless Claims , GDP, NAPM Chicago Index Employment Cost Index (Thursday)

• ISM Manufacturing Index, Employment Situation (Friday)

Have a great weekend!

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14. July 2008 by Ana Connell.

Lots of news last week and most of it was on the sobering side. We started off the week with a report from a Lehman analyst that FNMA and Freddie Mac will both need to raise a substantial amount of capital, 46 billion for FNMA and 29 billion for Freddie Mac, due to future pending write downs. Although this could be a non event, given the situation with IndyMac(see below) it is very troubling. Fed Chairman Ben Bernanke said he was opening the discount window to both institutions in order to provide “liquidity”.

The big news for the week came late on Friday. After market close, it was announced, that IndyMac Bank, a leader in “Alt-A” loans, had been seized by the Office of Thrift Supervision, due to a run on deposits. This made IndyMac Bank the 2nd largest federally insured financial institution to be seized by US regulators. The largest failure, if you are curious, was in 1984, Chicago’s Continental Illinois Bank and Trust. A successor institution, IndyMac Federal Bank FSB, will open next week. About now I’m remembering two years ago, when many prominent individuals were talking about how the subprime situation was under control said it would produce minimal fallout.

What caused all this was the huge number of defaults on mortgage loans made to, well, people who could not afford them. More troubling is the fact that there has clearly been little to no oversight of these institutions. The why is easy, everybody seemed to be making money, investors were making money and more people were given the ability to buy property, so it seemed like a win win for all. Problem is that if it seems too good to be true, it probably is. IndyMac managed to acrue $900 million in losses. So now depositors are left with the grim reality that only $100,000 on deposit with Indy Mac Bank will be insured.

What’s even more troubling about all this is that the FDIC has 90 institutions on it’s troubled bank list and Indy Mac Bank was not one of them. So this begs the question of how many more might fail. The clean up for this failure alone is expected to run between $4 and $8 billion.

The Federal Reserve is expected to issue new lending rules on July 14th that limit what’s termed as “exotic” mortgages. Too little too late for many and especially those with Indy Mac.

Market open tomorrow should be very interesting!

• Bonds…2 year 2.65%, 5 yr. 3.34% and the 10 yr. 4.00%.

• Crude oil closed at $145.12 per barrel.

• 30 Yr. mortgage average 6.09%

The Economic Week Ahead:

• Producer Price Index, Empire State Manufacturing Survey, Retail Sales , Business Inventories(Tuesday)

• MBA Purchase Applications, Consumer Price Index , Industrial Production, Housing Market Index , FOMC Meeting Minutes , Treasury International Capital report(Wednesday)

• Jobless Claims , Housing Starts, Philidelphia Fed Survey-(Thursday)

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27. June 2008 by Ana Connell.

Of Note:

• Consumer Confidence-came in at 50.4 one of the lowest readings and some economists are surprised since, in their words, “the expansion of the economy is underway”, meaning we are not in a recession. I would argue that most individuals are not feeling the positive effects of an expansion. Consider that overall real wages have remained stagnant in the last 30 years and that prices for many essential items have increased over that time, not the least of which is the price of a gallon of gasoline. Add to that the negative effects on net worth that lower real estate prices have produced and I’m not so sure things are as rosy on Main Street as the economists and Wall Street gurus would like. I’m still a believer that we have relied on consumer credit as a fix all for too many years and now we’re feeling the pain when consumers can’t keep up with their debt load. We’ll see how all this plays out over the next few years.

• New Homes Sales -512,000 units sold representing a 2.5% monthly decline and a 40% year on year decline. New Home prices were down 5.1% to an average of $231,000.

• FOMC left rates unchanged with the target funds rate at 2% and the discount rate at 2.25%.

• Durable Goods Orders came in flat for May.

• MBA Purchase Applications came in at 333.4 representing a 7.4% drop after last weeks drop of 4.3%.

• Jobless Claims , came in slightly higher at 384k.

• GDP-final was revised up to 1% basically indicating that we’ve dodged a recession……hope they are right.

• Exisiting Home Sales –rose 2% to 4.99M from April, but is still 15.9% lower than last year. The number was slightly encouraging but keep in mind that this is the selling season.

• Consumer Sentiment, came in with the third lowest reading since 1952, indicating that while we may not officially be in a recession, it feels like a recession for the average consumer.

• Personal Income and Outlays, got a boost from the rebate checks and came in at 1.9%…..of course all of that is going into our gas tanks, lol!

• Bonds…2 year 2.64%, 5 yr. 3.35% and the 10 yr. 3.97%.

• Crude oil closed at $140.46 per barrel.

Rough week again! The Dow ended the week at 11,350 with the price of oil front and center amid inflation worries.
For the record, I’m actually an optimist but I also think you have to put the rose colored glasses aside every now and then and sober up to the fact that it’s rough out there!  Our net worths have been significantly eroded by falling prices both in real estate and the stock market.   Add to that the prices at the pump and it can look pretty grim.

On the positive side I do think this market represents a huge buying opportunity!  Remember the old adage “buy low, sell high”?  Most of us panic when things are low because we think they will go lower.  So as easy as it is to say it, it’s much harder to take action and buy when prices are low.

On that note , have a great week!

The Economic Week Ahead:

• ISM Manufacturing Index, Motor Vehicle Sales(Tuesday)

• MBA Purchase Applications, Challenger Job Cut Report, Monster Employment Index,(Wednesday)

• Jobless Claims, Employment Situation (Thursday)

• 4th of July Holiday!!!(Friday)

I’ll post the July 7th week as well as there may not be as much to talk about next week:

• Pending Homes Index (Tuesday)

• MBA Purchase Applications, (Wednesday)

• Jobless Claims , Chain Store Sales, Bank of England (BOE) Announcement(Thursday)

• International Trade, Consumer Sentiment(Friday)

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