When 40% is not 40%
Mercifully, the first half of the year is over. We are still officially in recession, but there are signs that the economy has bottomed. Last week's employment report reminds us that we are not rebounding as of yet. We need to keep the numbers in perspective. For example, during the first half of the year, the S&P 500 rallied close to 40% from the low hit earlier this year. All told, the S&P 500 dropped almost 60% from the all-time high reached nearly two years ago. This does not mean that the stock market is close to "recovery." In rounded numbers, 60% of 1500 represents a drop of 900 points. An increase of 40% from 640 is only 260 points. This means we have a long way to go.
Expect the same recovery "mathematics" for housing prices. We would not be surprised if the recovery causes housing prices to move up 15% or so from their ultimate lows. However, a move upward of 15% would not come close to the 25% drop we have experienced. Keep in mind that even if prices are down 25%, they are still up 70% from 1985. Of course, these are not inflation adjusted numbers. The point is, we all need to keep statistics in perspective. Losing 400,000 plus jobs in a month represents horrific numbers. But they are much improved from the 741,000 jobs we lost in January. If there is any good news regarding these numbers, it is the fact that rates and oil prices are lower than they were two weeks ago. We can't emphasize enough times that keeping rates low will facilitate the recovery.
The Markets
Rates moved lower in response to weak economic reports in the past week. Freddie Mac announced that 30-year fixed rates averaged 5.32%, down from 5.42% the week before. A year ago 30-year fixed rates were at 6.35%. "Mixed economic reports on the state of the housing market helped hold rates fairly flat this week," said Frank Nothaft, Freddie Mac vice president and chief economist. "Lower rates are helping to support the housing market," said Frank Nothaft, Freddie Mac vice president and chief economist.
Home values fell at a monthly rate of 0.6 percent in April, representing the smallest decrease since June 2008, according to the S&P/Case-Shiller® 20-city composite index. In addition, home prices rose in eight of the cities in April."
Fannie Mae and Freddie Mac have received the green light from their regulator to refi underwater homeowners with loan-to value ratios as high as 125%. The special refi plan that Obama administration officials unveiled in February limited the option to loans with LTV ratios of 80% to 105%. But the 105% LTV limit would not offer any relief for borrowers who have seen the values of their home erode by 15% to 30%. "The higher LTV will allow more homeowners to strengthen their finances by taking advantage of lower rates," Federal Housing Finance Agency director James Lockhart said. Fannie Mae said it would accept delivery of the higher LTV loans starting Sept. 1. A Freddie Mac spokesman said it would start accepting the loans "now." The GSE financing program is only available to borrowers with loans that are owned or guaranteed by Fannie and Freddie. They also have to be current on their payments.
According to an annual state of the nation's housing from Harvard University's Joint Center for Housing Studies, once the U.S. emerges from recession, strong demographic trends will restore health to the housing market. The key is echo boomers, the 75 million Americans born between 1979 and 1995. "There will be 5 million more echo boomers than there were boomers when they first started swelling housing markets," said Eric Belsky, executive director of the Joint Center. As a result, household growth during the next 10 years should range between 12.5 million and 14.8 million, according to the report. All those new households mean demand for many new housing units. "This is a powerful, powerful underpinning of future demand," said Belsky. Source: CNN/Money
Housing confidence is up amid increasing evidence that the market is turning around. The Adversity Index from MSNBC.com and Moody's Economy.com reported signs of a turnaround in 33 of the nation's metro areas. While that's less than 10 percent of all metro areas, it's still significant, says economist Andrew Gledhill of Economy.com. Source: MSNBC
Sales of existing homes showed another gain in May, benefiting from favorable affordability conditions and a first-time buyer tax credit, according to the National Association of Realtors ®. May's increase was the first back-to-back monthly gain since September 2005.
" Total housing inventory at the end of May fell 3.5 percent to 3.80 million existing homes available for sale, which represents a 9.6-month supply at the current sales pace, down from a 10.1-month supply in April. Source: National Association of Realtors®
The Federal Reserve kept its key rate near zero at their last meeting, and said in a statement that although the U.S. economy remains weak, there are signs of a recovery. The central bank said that the pace of the nation's economic decline is slowing and that household spending is showing signs of stabilizing. Even though this was the first official statement from Fed policymakers to hint at signs of stabilization in the economy, Keith Hembre, chief economist at First American Funds, said Chairman Ben Bernanke and other Fed members have been suggesting signs of improvement in individual speeches in recent months. Source: CNN/Money
If you would like to discuss the dynamics of what is happening in the market or would like information and real estate opportunities in the Bear Valley, Arnold, Murphy's, Angels Camp and Copperopolis area please email me at Daniel@BigTreesRealty.com or go to www.BigTreesRealty.com call me at 1 209 795-4218 By clicking here you can search like a Realtor.
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