Market Update – Housing Is The Key

We’ve been very busy over the last couple weeks.  Many of our clients are taking advantage of the incredible prices and low interest rates. Here’s a great market update provided by Austin Andruss, a mortgage broker partner of ours.

Market Recap:

Good earnings reports from financial companies continued last week as Bank of America reported earnings that were much better than expectations. The company also said it earned more in the first quarter of 2009 than through all of 2008, largely a result of enormous refinancing activity. In addition, Treasury Secretary Tim Geithner said that most banks are well capitalized, and there are signs that credit market conditions are improving, which is definitely something to be optimistic about. However, as earnings season marched on, there were also some weak reports, including clinkers from The Bank of New York, Caterpillar, Dupont, Coca-Cola, Merck and United Technologies.
On the housing front, New Home Sales came out slightly better than expected, and it was especially good to see that the inventory number continues to fall – now at a 10.7 month supply, compared with February’s 11.2 months. Existing Home Sales came in slightly below market estimates – and while the report showed that Existing Home inventory in March fell by a modest 1.6%, at the current sales pace it would take an estimated 9.8 months to sell that inventory of properties, slightly longer than February’s 9.7 month reading. The path back to economic recovery will go through housing, and these reports will be important to watch in the months ahead.

In other news, Initial Jobless Claims were reported in-line with expectations. Initial Jobless Claims are a leading indicator and last week’s number does not yet suggest that the employment market is starting to improve. And March’s Durable Goods Orders marked the 7th negative reading in the last 8 months, as tighter credit and lack of business investment is continuing to fuel these negative numbers. However, it will be interesting to see how these numbers change with lending abilities now freed up following the recent relaxation of mark-to-market accounting rules, which will in turn make it easier for businesses and consumers to buy and spend.

There are several important reports and events to look for this week, and whether they will lean towards optimism or pessimism remains to be seen. On Tuesday the Consumer Confidence Report will show us if consumers are feeling their own glass is half full or half empty, while on Wednesday we will get a read on the economy with the Gross Domestic Product (GDP) Report, which is the broadest measure of economic activity. Also this week, we have the Fed’s next regularly scheduled Federal Open Market Committee meeting, followed by their Policy Statement and Interest Rate Decision coming on Wednesday afternoon. It will be important to see if the Fed has a positive or negative read on the economy, and if they comment on any of the recent whispers of inflation. And speaking of the Fed and inflation, the Fed’s favorite gauge of inflation, the Core Personal Consumption Expenditure (PCE) index found within the Personal Income Report, will be released on Thursday.

March 2009 Price Report

Here are the latest sales numbers for all homes sold within the city of La Quinta as well as all Golf Course homes in La Quinta. The blue lines represent 2008 data and the orange lines represent 2009 data.

The chart above shows annual sales of homes within the city of La Quinta. When looking at “sold” data, you have to remember that the numbers are generated on the date that the sale is recorded with the county but that the decision to buy was made about 45 days earlier. As you can see from the chart above, our “season” begins after the new year and tapers off with the heat in June and July. We see a little spike in September and October in the number of homes sold from the folks that believe that the best deals can be had in the highest heat of the summer.

The number of homes sold in golf course communities in La Quinta has decreased since this time last year. While the lower end of the market has been extremely active ($400,000 and below), the upper-end (which contains many of the golf properties in the above report) has been sluggish. This can be attributed to many things, such as the higher interest rates and tougher qualifications in the jumbo-loan market, and many 2nd home buyers have been waiting on the sidelines to re-enter the marketplace once they feel more confident in the economy. We have seen A LOT of pent-up-demand from buyers waiting and we feel that when things return, they are going to return in a big way.  If buying a golf property is something on your list, why not take advantage of the incredible prices and seller incentives now, when sellers will work with you, instead of in the future, when the demand starts to catch up with the supply? Especially if you’re buying and holding for 5+ years.

The bottom line…

Unit sales in 2009 are beginning to lag behind the same period last year as far as the numbers and the price/value of the homes reflecting the downward trend of the general housing market. Please remember that the decline of the real estate market greatly accelerated in September, 2009 when our economy went into crisis and consumer confidence disappeared. We are now, 6 months later, beginning to see increased activity, a trend that many economists believe will continue to grow in the next several months. With home prices as low as they are now, and capital starting to flow back into the banking system, tremendous opportunity exists right now for buyers in all spectrum’s of the market.

Here are some yearly sales figures for the City of La Quinta from 2002:

Year        All LQ      Golf Course
2002        1,354          259
2003        1,565          652
2004        1,931          813
2005        1,553          657
2006        1,098          491
2007           935          447
2008        1,063          416

Change in Mark-To-Market Accounting Is Good News!

Here is a Market Update provided by Austin Andruss, a mortgage broker from RPM mortgage. He can be reached at 415-869-6135.

Last Thursday the Financial Accounting Standards Board (FASB) issued a favorable vote to relax mark-to-market accounting, which many believe will help to unlock the continuing freeze in the credit markets. The significant changes in the accounting rules will allow financial companies to use alternate models, like cash flow analysis, in valuing their assets. This appears to be great news for the financial markets and our economy at large, as this will help money and credit flow more normally. Since the March 12th Congressional hearing on mark-to-market, Stocks have risen 23% just on the speculation a change could be coming. And just one short day after the FASB mark-to-market ruling, there were stories of banks already saying they may not need to sell assets to raise capital, as they will no longer have to take massive paper losses by pricing their assets to the “fire-sale” comps that were created in some of the illiquid markets. Capital ratios are now more in line for many institutions, which will also help their ability to lend – in turn helping consumers and businesses alike.

According to Friday’s Jobs Report the economy lost 663,000 jobs in March and 5.1 million jobs since the recession began in December of 2007. However, for the first time in a very long while, there were no downward revisions to a prior month’s reading, as February’s number came back with no change. This, as well the actual job losses for this month being improved from January’s levels, and not much worse than expectations, could mean there is some level of stabilization at hand for the labor market. Something else worth smiling over on the job front was Wednesday’s news that Challenger, Gray & Christmas, an executive outplacement company, found that planned layoffs at US firms fell in March to their lowest levels in six months.

While Stocks were buoyed by the Mark-to-Market announcement and optimism that the G20 meeting in London will lead to an agreement on ways to pull global economies out of the current recession, Bonds were unable to hold onto recent gains. As a result, rates ended the week .125-.25 percent worse than where they began.

There are few scheduled economic reports to talk about this week, but don’t expect the rest of the news to be quiet. First quarter earnings season begins, and while the change to mark-to-market take effect for the second quarter, it can be applied to first quarter earnings. In fact, rumors are already swirling that the change in mark-to-market will boost earnings of banks by 20% or more for the first quarter. In addition, the US is prepared to sell an estimated $59 Billion in notes and inflation-indexed securities this week, and it will be important to see what impact that supply has on Bonds and home loan rates. And as we continue to watch the labor market, it will also be important to keep an eye on Thursday’s Initial Jobless Claims report to see if the news is good, bad, or ugly. But remember: Strong economic news will likely cause Stocks to move higher, and Bonds and home loan rates may worsen in response as we saw last week.