April 23 Home Finance Update

Steve Peterson, Branch Manager
Chase Home Finance
Office: (800) 894-5440 Ext. 214
Cell: (775) 219-7151
The economic indicators this week are rather glum, and I have to say that I expect them to remain rather negative for quite some time. Oddly, though, that won’t necessarily mean that the real estate market is getting worse–even though analysts in the newspapers will say it does.
 
We have a great deal of restructuring ahead of us. The financial markets–notably stock brokerages–have a lot of work ahead, primarily to regain some degree of confidence from investors and to assemble a system of regulation that makes sense, probably headed by the Federal Reserve.
 
While this is going on, mortgages will increasingly be written, houses will increasingly be sold…but we’ll all be rethinking the way we practice our trade and making changes where they seem right.
 
Warm regards,

Steve

Weekly Commentary

Thumbnail Sketch: There were a number of other important economic indicators released last week. Let’s review them:

Industrial production rose 0.3% in March, which suggests that, though the sector isn’t growing with much vigor, any weakness is rather muted. This is in agreement with the thesis that the recession—which most noted economists agree we have already entered—should prove to be relatively mild.

It is partly due to this apparent strength in the manufacturing sector and the Fed-induced growth in the nation’s money supply that the Index of Leading Indicators halted its gradual decline after five months and rose in March by 0.1%.

Meanwhile, sales of existing homes in March declined by 2%, with the supply of homes on the market slightly higher than the prior month, at 9.9 months’ worth (meaning, of course, that it would take 9.9 months to sell off all current inventory at current rates of sale, assuming no further homes were added to the inventory). The median price of a home was 8% lower than at this time last year. All in all, the real estate market is eating feathers here—but the story becomes far more intriguing, as usual, if you look at reality a bit more closely.

One rather fascinating report that reached the news recently is that homes within easy driving—or even walking—distance of places to work in metropolitan areas have recently shown about a 10% jump in median selling values. This may signal a major change in what buyers are looking for. With gasoline prices unlikely to drop by much in the foreseeable future, with concerns about the environmental expense of long commutes—not to mention the expense in terms of time wasted—more and more homebuyers are placing more and more value on housing that is closer to work. Further, there is a revitalization of many of our nation’s cities underway. These are important trend-makers for the future of real estate here.

Two other observations, both of them rather intuitive: First, you may have noticed that interest rates tend to edge north whenever we go through an economically neutral period—generally, with few startling economic indicators. This underscores a belief that we are unlikely to see interest rates fall much further unless lower rates are clearly needed to rescue a plummeting economy.

Second, we may not even see the real estate recovery when it has settled in our midst—because it might not look the way we expect it to. Certainly, it won’t look like the market of two years ago. We’ll need to remain very alert to market changes.

KEY INDICATORS 

Gold $924.30/ounce [down]Crude Oil (Brent) $116.46/brl             [up]U.S. Dollar to…    Euro .6251 [slightly down]    Japanese Yen 102.89 [up]6-mo Treasury Bill Yield 1.63%10-yr Treasury Note Yield 3.72% [6-mo up 19 bps, 10-yr up 13 bps]11^th Dist Cost of Funds: 3.560%30-yr Fixed-rate Mortgage 6.68%15-yr Fixed-rate Mortgage 6.13%1-yr ARM 6.86% [HSH averages rates: 30-yr up 32 bps, 15-yr up 25 bps; 1-yr ARM up 49 bps] 

Mortgage Bankers Association Mortgage Applications Index week ending 4/11  Overall    743.4 (up 2.5%; up 5.4% the week prior)  Purchase Money Loans     381.6 (down 0.8%; up 8.1% the week prior)  Refinancing Loans    2866.0 (up 5.2%; up 3.4% the week prior) 

Weekly Jobless Claims 4/12372,000 first computation – 355,000 prior week (with downward revision of 2,000) 

Consumer Price Index (CPI) Mar    Up 0.3% - core (w/food &energy prices removed) rose 0.2% - annual inflation rate 4% (core was 2.4%) 

New Housing Starts March

    Down 11.9% - permits down 5.8%