Aprl 2 Economic Update
April 2nd, 2008Thumbnail Sketch: Though it is important to remember that existing home sales are down 23.8% from their year-ago level, the February uptick of 2.9% over January’s sales level may suggest that the market has hit bottom. Even more impressive is the fact that the number of homes available for sale is dropping—with February’s drop in inventory larger than any since October 2001.
Does this mean the recovery is here? That’s a tough call, of course. Most economists believe the market has much further to fall, primarily because they expect huge numbers of foreclosures to continue swelling the inventory on the market. There are, however, two factors—at the least—that argue somewhat persuasively for a market bottom:
First, the number of new listings coming to market typically rises during the beginning of a calendar year. This February, there were 400,000 fewer new listings that came to the market than in February 2007. This coupled with signs that home purchases are just now starting to increase in number suggests a turning point—though turning around fully could take a long time.
Second, as many contrarians have noted, every tangentially relevant government agency is working on the housing problem and the major issues in the financial markets. This brings to mind the so-called “Business Week Indicator.” Investors have long held that a stock sector’s appearance on the cover of the magazine should tell us that we’re looking at old news, and where the magazine may be suggesting we buy, we might profit far more by selling. Similarly, many suspect that the enormous amount of attention being showered upon the housing market’s problems suggests that they may be about over.
But again, the best advice may be to expect that the real estate market may bounce along a rocky bottom for several months before a recovery gains traction.
Meantime, nearly everyone is becoming aware that we have problems of “epic” proportions (to use economist Paul Krugman’s term) that will need to be mended—as the Bear Stearns mess is still in the midst of repair—and, even more important, our financial market needs to be reinvented, especially in the ways it has and has not been regulated over recent years.
This is not an anti-free-market observation. The bastion of free marketing thinking, London’s The Economist, declares: “No doubt, there are many ways in which financial regulation needs to be fixed; but that is for later. The priority for policymakers is to shore up the financial system.”
KEY INDICATORS
Gold $936.50/ounce [up slightly]Crude Oil (Brent) $103.77/brl [up]U.S. Dollar to… Euro .6331 [slightly down] Japanese Yen 99.24 [down]6-mo Treasury Bill Yield 1.51%10-yr Treasury Note Yield 3.44%[6-mo down 4 bps, 10-yr down 7 bps]11th Dist Cost of Funds: 3.970%30-yr Fixed-rate Mortgage 6.41%15-yr Fixed-rate Mortgage 5.80%1-yr ARM 5.48%[HSH averages rates: 30-yr down 4 bps, 15-yr down 25 bps; 1-yr ARM down 72 bps]
Mortgage Bankers Association Mortgage Applications Index week ending 3/14 Overall 652.0 (down 2.9%; down 1.9% the week prior) Purchase Money Loans 365.0 (down 1%: up 1.6% the week prior) Refinancing Loans 2335.0 (down 4.6%; down 4.7% the week prior)
Weekly Jobless Claims 3/15 378,000 first computation – 356,000 prior week (with upward revision of 3,000)
Conference Board Leading Indicators Index Feb Down 0.3% (fifth month down – consistent with mild recession)
Existing Home Sales Feb Up 2.9% - inventories down 7.5% - median price down 8.2%
NAHB Housing Market Index Mar Unchanged at 20
Housing Starts Feb Down 0.6% - permits down 7.8%
Fed funds rate cut by .75%
