MARKET UPDATE–is the market and economy stabilizing?

The economic reports before Thanksgiving were all positive! Monday saw Existing Home Sales UP 10.1% to an annual rate of just over 6 million, the highest since February 2007. Sales are now up 20% in the past two months and up 36% from January lows. The supply of existing property inventory was down to just 7 months– the lowest level in almost three years. This puts existing homes very close to the 6-month supply level of a healthy housing market. The Case-Shiller 20-City Composite Home Price Index rose 0.3% in September. The index also showed its second consecutive quarterly increase, UP 3.1% for Q3, returning to August 2003 levels.

Freddie Mac reported mortgage rates down for the fourth straight week, reaching historic lows well below 5%, with an average 0.7 point, for prime borrowers with 20% down payments. Freddie Mac’s chief economist said, “Interest rates for 30-year fixed-rate loans are currently 0.8 percentage points below this year’s peak set in mid-June, which shaves roughly $100 off the monthly payments on a $200,000 mortgage.”

New single-family Home Sales were UP 6.2% in Oct. to an annual rate of 430,000 properties that have changed hands. New Home Sales are now UP 30.7% over their January low. The unsold supply of new homes declined to 6.7 months as of Oct., with inventories at 239,000, 58.2% down from their mid-2006 peak and at their lowest level since mid-1971. The median price was down only 0.5% from a year ago and average price down just 4.7%.

>> Review of Last Week

With market gains and encouraging economic reports. Retailers’ Black Friday exceeded expectations, but unfortunate financial news from Dubai turned Wall Street’s Friday a depressing black, with the Dow losing 154 points on the day. The Dubai government announced there would be a six-month standstill on debt repayments for Dubai World, its holding company. This sent world markets reeling with fears of multi-billion dollar defaults. Fortunately, Dubai is part of the super-wealthy United Arab Emirates (U.A.E.), which should provide deep support. In addition, U.K. and European banks, with little U.S. involvement, mostly hold Dubai’s debt. The situation bears watching, although our recovery remains clearly on track.

On Tuesday, for example, Q3 GDP growth was revised down to a still substantial 2.8% annual rate. The key item in the report was the look at Q3 corporate profits, which grew at a very strong 50% annual rate, the third consecutive quarterly increase. Wednesday, initial jobless claims dropped to 466,000, sending the four-week moving average down to 496,500, below the level a year ago. Continuing claims are now down to 5.423 million. The Richmond Fed Manufacturing index showed expansion of activity for the seventh straight month.

Consumer Confidence went up to 49.5 for November, beating consensus estimates. This tied in nicely with Wednesday’s reports showing personal incomes are rising, consumer spending is up and the savings rate is 4.4% vs. 1.7% just two years ago. Even non-mortgage consumer debt is down 5% from its mid-2008 peak.

Nonetheless, the Dubai surprise left the Dow off 0.1% for the week, at 10309.92; the S&P 500 was up just 0.11 points, to 1091.49; while the Nasdaq slipped 0.4%, to 2138.44.

Prices held higher in the bond market, as investors anticipate the fall-out from Dubai and its state supported debt issues. The FNMA 30-year 4.5% bond we watch ended up 72bp from the previous week’s close, finishing at $102.50. Mortgage rates, as noted above, fell last week to historically low levels!

>> This Week’s Forecast

FOCUS ON JOBS… The week opens with insight into the continually improving manufacturing sector, while Pending Home Sales figures hold our interest on Tuesday. But the real focus for the week will be on Friday’s November jobs report. Analysts will be looking for further signs of recovery in this lagging economic indicator. The consensus expects the unemployment rate to plateau, which is an improvement over rates on the rise.

>> The Week’s Economic Indicator Calendar

Weaker than expected economic data tends to send bond prices up and interest rates down, while positive data points to lower bond prices and rising loan rates.

Economic Calendar for the Week of November 30 – December 4

Date Time (ET) Release For Consensus Prior Impact
M
Nov 30 09:45 Chicago PMI Index Nov 53.0 54.2 HIGH
Tu
Dec 1 10:00 ISM Index Nov 54.8 55.7 HIGH
Tu
Dec 1 10:00 Pending Home Sales Oct –0.5% 6.1% Moderate
W
Dec 2 10:30 Crude Inventories 11/27 NA 1.02M Moderate
Th
Dec 3 08:30 Initial Unemployment Claims 11/28 483K 466K Moderate
Th
Dec 3 08:30 Continuing Unemployment Claims 11/21 5.517M 5.423M Moderate
Th
Dec 3 08:30 Productivity–Rev. Q3 8.5% 9.5% Moderate
Th
Dec 3 08:30 Employment Cost Index Q4 NA 0.4% HIGH
Th
Dec 3 10:00 ISM Services Index Nov 51.5 50.6 Moderate
F
Dec 4 08:30 Average Workweek Nov 33.1 33.0 HIGH
F
Dec 4 08:30 Hourly Earnings Nov 0.2% 0.3% HIGH
F
Dec 4 08:30 Nonfarm Payrolls Nov –114K –190K HIGH
F
Dec 4 08:30 Unemployment Rate Nov 10.2% 10.2% HIGH

>> Federal Reserve Watch

Forecasting Federal Reserve policy changes in coming months. The Fed continues to affirm it will keep rates down until the recovery looks more solid, but inflation is always a concern. Overall consumer prices in the last six months are up at an annual rate of 2.7%, but economists don’t expect any rate changes in the near future. Note: In the lower chart, a 1% probability of change is a 99% certainty the rate will stay the same.

Current Fed Funds Rate: 0%–0.25%
After FOMC meeting on: Consensus
Dec 15 0%–0.25%
Jan 27 0%–0.25%
Mar 16 0%–0.25%

Probability of change from current policy:

After FOMC meeting on: Consensus
Dec 15 1%
Jan 27 1%
Mar 16 3%

TAX CREDIT EXTENSION!

November 5th, 2009 — Today the U.S. House of Representatives overwhelmingly supported a measure to extend and expand the First Time Homebuyer $8000 Tax Credit until April 30, 2010 – potentially re-opening a quickly closing window of opportunity for First Time Home Buyers in Idaho along with helping those which would like to “move up”.

The measure was also passed unanimously by the Senate last night, and is currently on the way to the President for his signature. The President is expected to sign the measure as early as Friday. The measure also includes a new $6500 tax credit for existing homeowners who qualify for the program.

Details of the legislation that was passed, including information on who qualifies for the credit, can be found by clicking the following link: Tax Credit Details. This is wonderful news for potential homebuyers in Idaho as it extends the time limit on this great opportunity to make the most of this historically unique real estate market. Mortgage rates are on the rise; now is the perfect time to make the move into a new Idaho home.
Contact Matthew Le Baron at 208-869-3469 to find out more about this tax credit extension and how it can benefit you.

The top 10 signs the real estate market is on the rise

Many people are sitting on the sidelines waiting for the real estate market to hit the bottom before they make a move.

The question is: Have we already reached the bottom?

Last week you may have sensed that the real estate market may be starting to change direction. It is probably not an abrupt 180-degree turn, yet you get a feeling that the real estate ship may be changing direction and here are some of the signs.

Sign No. 1: If you read one of the recent issues of Newsweek, the columnists are hinting of a positive change.

Sign No. 2: On the Fox business channel on Saturday, one of the financial pundits said he was going to go buy two homes for his children so they do not miss this fantastic opportunity.

Sign No. 3: Ben Bernanke, the Federal Reserve chairman, suggested that the recession may be over by the end of the year.

Sign No. 4: President Obama has switched gears and is now proclaiming the “underlying economy is fundamentally sound.”

Sign No. 5: A local financial services company related that the number of stock market buy orders is starting to increase.

Sign No. 6: The number of buyers we are working with is increasing.

Sign No. 7: Metropolitin area business columns are starting to speak cautiously optimistic about the real estate market.

Sign No. 8: The number of national new home starts increased last month.

Sign No. 9: The Federal Reserve did not raise short term interest rates and mortgage rates are still at an all-time low between 5 percent to 5.5 percent.

Sign No. 10: Consumer confidence appears to be on the upswing.

In many situations if you are selling and then buying a home, now is a great time.

Here is one scenario: If you want a larger home and your home’s value was $250,000, today it is probably worth $200,000, a 20 percent decrease in value.

The home you wanted to buy for $500,000 likewise has seen its value reduced by the same 20 percent and today’s price is $400,000.

So when is the better time to sell and buy? In the height of the market, you would have had to come up with $250,000 more than the value of your present home.

In today’s market, you would only have to come up with $200,000 more than the present value of your home.

Combine that with today’s interest rates and ask yourself, is now the time to upgrade?

Sweat Equity on the Rise!!

Jim and Kristina have taken advantage of the real estate market.

At the start of 2009 this couple sold their home in Meridian with the intention of moving to California to be near family. After months and months of looking at several homes in the Golden State, the couple became discouraged and began to sense that Boise Idaho’s pricing, along with quality of living, was too good to pass up. With that, Jim, Kristina and I began a search for their new home.

New construction, short sales, bank-owned property and occupied homes alike all had positives and negatives. When the dust settled, however, the couple found that a well-built bank-owned property within a cozy community fit the bill very nicely. Although the floors were ratty, the paint distasteful and curb appeal lacking, the home had much potential. The kitchen was open and bright with plenty of cabinet space, the floor plan flowed with ease and the quality of construction was first rate. In 2006 this home would have sold for the mid 180’s but by working together, the Beans were able to make the purchase for only $130,000.

Jim and Kristina have always been “handy” people. In fact, while in California the couple spent many weeks helping their son and daughter construct their personal home. During this time, Jim and Kristina learned trades that included installing tile, hardwood flooring, siding-you name it!! The knowledge was definitely put to good use.

The work began. Kristina began stripping the countertops and laying tile. Jim started pulling the dirty carpet and ripped vinyl planning to lay a hickory floor. All the while, doing prep work for the full interior paint job. After nearly 30 days of sleeping on cots and eating cold dinners, the Beans completed their project and invited me over to see the results of their “sweat equity”.

I could hardly believe that it was the same home! The smell of fresh paint and lacquer was prevalent while Kristina excitedly directly me toward the kitchen. Granite and tile graced the middle island, countertops and backsplashes; the cabinetry was antiqued while the stainless steel appliances topped it off. “Wow!” I exclaimed. Next, Jim spoke about the hickory flooring that was laid throughout the first floor. It was gorgeous and only cost $1,000 for the material! Jim and Kristina were proud of their work and had every right to be.

Before leaving, Jim and I discussed the market and what the home might sell for right now. At least $150,000, I mentioned, if not more. Jim stated that he and Kristina had put $2,000 (plus or minus) into material and couldn’t be more thrilled that they had realistically made $16,000 for their time. “In a year or so, Matt, we’ll be doing this again. And also, my kids down South are itching take advantage of the pricing around here”.