From Fry Cook to Homebuyer? It's a Start!

Wells Fargo's economists wonder if McDonalds' recent mass hiring is a sign of things to come by other employers.  While not too many South Bay homebuyers work at McDonalds, our area's "utes" (youths) do need to pick up some work experience somewhere.  At a minimum, says the article, these jobs "will provide valuable on-the-job training for young workers, many of which have little or no work experience, that will help them become more productive workers both now and in the future." - Submitted by BCD reader Rod Kuhns

Treasuries Tumble, Pushing 10-Year Yields Up Most Since April

Predicting mortgage interest rates is a challenging proposition (if accuracy matters to the forecaster!). The 10-year Treasury Bond is a major key.  As this article says, "we're on a knife's edge."  But are we, or is that only in the short term?  It's difficult to imagine a scenario that would not have rates increasing from their current levels in the coming years. - David

July 10 (Bloomberg) -- Treasuries fell for the first week in a month, pushing 10-year yields up the most since April as concern eased the U.S. will slide back into recession and the government prepared to auction $69 billion of notes and bonds.

The 30-year bond yield rose above 4 percent and the 10-year yield exceeded 3 percent for the first time this month as stocks and commodities climbed, damping bonds' haven appeal. A report next week is forecast to show a U.S. retail sales decline slowed last month, adding to data that showed unemployment claims down and wholesale inventories up.

"We're seeing a move toward riskier assets," said Guy Lebas, chief fixed-income strategist and economist at Janney Montgomery Scott LLC in Philadelphia. "There's a feeling that the pessimism was overdone."

New Home Sales Plunge - - Wait, I Thought They Were Up!

A recent post on this blog told of how home sales were considerably up in May.  In this one, I'm relaying a report by the Wall Street Journal that home sales were considerably down in May.  Head spinning yet?

Both posts are true, revealing the difficulty in understanding the housing market by merely glancing at headlines.

The posts refer to different measures:

• Sales of existing ("used, gently or otherwise") homes were indeed up 19.2%
• Sales of new (previously unoccupied) homes (often mistakenly interpreted as new sales of existing homes) were down by 32.7%.

Why would this be the case, and which if either should you care about?

Well, new home sales are certainly good for the economy, but they are a small percentage of the total inventory of houses.  But besides pure levels of buyer demand, new home sales are greatly dependent upon the number of new homes that builders are building!  So if homebuilders are not building as many homes as before (they aren't), or if special financing isn't being offered in this market, then that measure will tend to decline.  You should care about this if you are a homebuilder, or invest in homebuilders, or are an economist, or live next door to an enormous new tract offering big discounts and 0% financing..Personally, I care much more about the number of new housing permits issued than the number of new homes sold.

Existing home sales have to do with the natural turnover of the nation's inventory of homes, whether built in 2009 or 1909, so long as they've been previously occupied.  This is a much more telling economic indicator with respect to the housing market.  You should care about it if you're a current or prospective homebuyer or seller!  But like any measure, I wouldn't worry too much about it on a month to month basis.  Because it may or may not be "seasonally adjusted," and it may or may not be affected by factors as simple as a different number of days in the month!

More info: New Home Sales Plunge - WSJ.com

For the real story, you need local data.  Ask your Realtor! -David

Mortgage Delinquencies Decline Again - WSJ.com

The headlines would sometimes have us believe that every statistic is an important signal. Of course that isn't right; statistics are merely data points. Trends, on the other hand, are significant, and this one is beginning to look very encouraging: Mortgage Delinquencies Decline Again - WSJ.com - David

FT.com - Kohn makes case for low interest rates

Outgoing Federal Reserve VC Don Kohn makes case for continued low interest rates, in support of Fed Chair Bernanke's position on the matter.  He's got it right. 

The recovery is real but fragile.  The few calls for increasing rates that are beginning to trickle out of other camps within and beyond the Fed are based upon a dangerous, destabilizing paranoia: that central banks must raise rates whenever they are low, simply because they might later be blamed (e.g., for the inflation that might happen or the low-rate mortgages that might be granted or the comparisons with Alan Greenspan that might be made) if they don't. - David

Cheap Mortgages May Last as Investors Replace Fed - Bloomberg.com

The Federal Reserve wrapped up its program of mortgage purchases this week, leaving it to investors to replace the demand.  The level investor demand will have a great influence on the level of mortgage interest rates in the coming months. While rates have crept up around 25 basis points (1/4%), it's generally perceived that Cheap Mortgages May Last as Investors Replace the Fed.

It will be important for buyers and sellers alike to keep a close eye on rates as they continue to creep upward, for their impact upon affordability and payments is enormous. - David

Outrage over California tax credit [not shared by your blogger] | Inman News

One real estate agent in the South Bay is "outraged" and "ashamed" at the California homebuyer tax credit legislation recently signed into law by Gov. Schwarzenegger. His letter to the editor appears here, Outrage over California tax credit Inman News, as does your blogger's refutation of its seriously naive reasoning!

I'd call it a little self-defeating when a seller's agent argues against a program designed to stimulate the California economy by helping buyers purchase his sellers' homes, but there it is. Hopefully a few of them are reading this! - David

Southern California home prices rise 10% in February - latimes.com

Here's the regional info we want to see. Southern California home prices rise 10% in February!  Foreclosures are down in the area as well.

What's missing?  Stated income jumbo loan financing, which remains nonexistent in any real sense.  So self-employed purchasers looking to purchase larger, more expensive homes must come up with enormous down payments or work with a mortgage broker with access to nontraditional financing sources (ask me for a referral!). - David

RCLCO Market Outlook - Brightening Horizon?

"As economic growth matures into employment growth—probably later this year and in 2011—move-up activity, in particular, will accelerate, creating more dramatic pricing power as the market becomes significantly more fluid."

This forecast, relating to residential real estate, is from Robert Charles Lesser & Co., the leading commercial real estate consultancy in the U.S. and perhaps the world.  Their forecasts for the real estate markets tend to be focused and intelligent.  Here's RCLCO's Spring 2010 Market Outlook, including sections relating to both retail and commercial markets. - David

Fed Meets, Rates Hold, Time to Refinance

In this MarketWatch video, a BankRate expert explains the importance of locking in low fixed rates while the Federal Reserve keeps rates low (as they reaffirmed today).  This is smart advice in an environment of rates that are low for now but can only go up. - David

What Buffett Thinks about Housing

Want to know what Warren Buffett predicts for the US housing market?  Then you need to look at paragraphs 4-7 on Page 12 (Page 14 of the pdf) of the 2009 Annual Report of Berkshire Hathaway Inc.  Since Berkshire Hathaway owns several real estate interests, Buffett weighs in on the housing market in his Chairman's letter. - David

Latest Federal Reserve Beige Book Released (3/3/10)

The latest version of the Federal Reserve's "Beige Book" on Current Economic Conditions was issued today.  If you're interested in the US economy (nationwide and regionally), you should read this book each time it's issued 8 times a year.  Note: Now it's an online report; it use to be a beige-colored softcover printed edition.

Here's how to read a Beige Book:
- Go to the link above and click on the most recent report
- Read the Summary info for the US as a whole
- Scroll down and read any sections of interest (like Real Estate and Construction!)
- Click on our region (the San Francisco District) and read that too.

That's it.  Takes 5 minutes and you know what the Fed is thinking about, unfettered with journalistic editorializing found in writings about the Fed (like this one!). - David

Bernanke: Low Rates Still Needed - WSJ.com

Ben's got this one right: Low rates are still very important to our recovering economy. 

Bernanke: Low Rates Still Needed - WSJ.com

Still, it puzzles me why he would be even hinting at raising rates in the future.  We are so far from an inflationary scenario that it's precisely what he should NOT be signalling at this time. Yet the inherent nature of a central bank is to have its finger poised closed to the short term interest rate trigger, perhaps because that's the most powerful direct economic weapon it has. 

Right now, it would make a lot more sense to holster that weapon entirely. - David

"Home prices rose for the seventh straight month in December..." - Builder Magazine

What does it mean when home prices rise in a single month?  Not much.  But in this article we learn that this is the 7th month in a row, which is very significant:

Home prices rise 0.3 percent in December - Builder Magazine

The S&P/Case-Shiller index tells us that home prices maxed out in May of 2006, nearly four years ago.  So housing declines continued for about three years, then leveled out nationwide in the middle of 2009. 

Does that signal a big runup soon?

Heard on the Street: Watch for Steeper Yield Curves - WSJ.com

World interest rates are rising at the long end of the yield curve. Since we are funding so much of our economy with foreign debt, this means our own yield curve will steepen as well, meaning higher long-term interest rates on the way. - David

Where does your state rank? - CNNMoney.com

Curious how California is faring compared to other states with respect to unemployment and home foreclosures? Here's a map with the answers: Employment - we're one of the hardest hit; foreclosures - not quite as bad. - David

A Simple Explanation Of The Federal Reserve Statement (January 27, 2010 Edition)

The Federal Open Market Committee voted to leave the Fed Funds Rate within its target range of 0.000-0.250 percent.
In its press release, the FOMC noted that the U.S. economy “has continued to strengthen”, that the jobs markets is getting better, and that financial markets are supportive of growth.

Mortgage Bulls Bid Fed Adieu - WSJ.com

What impact will be felt by the Fed's announced pullout from investing in Treasury Securities by March 31? Very substantial, in the form of rising rates, unless other factors and players pick up where the Fed's rate mitigation efforts leave off. Key quote:

"The optimistic view hinges on the government remaining an enormous presence in the mortgage market, both through its mortgage-backed securities holdings and the widespread expectation that it could jump back in if the market falters."

Mortgage Bulls Bid Fed Adieu - WSJ.com

I believe we'll see rates begin to rise,

An early warning system for asset bubbles - McKinsey & Company

McKinsey & Co. is working on something really valuable: a predictive model for overheated asset markets (bubbles) like the one we're recovering from now. Key quote from the article, which first appeared in the Financial Times:

"The answer lies not in the level of debt alone, but in the sustainability of debt."

McKinsey & Company - An early warning system for asset bubbles

The right predictive models could be enormously helpful. We probably wouldn't have believed them during the recent real estate run-up, but I'll bet we pay attention going forward. - David

Homebuilding forecast: Modest growth in 2010

Not a strong recovery, but a recovery nonetheless.  That's the homebuilding industry's prediction for 2010 - David

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