Existing Home sales down again
Existing home sales have fallen for the fifth straight month. According to the
National Association of Realtors sales of previously owned homes dropped by 2.8 percent. As I
posted yesterday, I don't think this makes much of a difference to Houstonians. Our housing market seems to be going fairly strong and price should remain quite stable.
Joel Naroff, Chief Economist for
Commerce Bank, does not have an optimistic vision for the real estate sector.
Here's what he had to say:
Pssssssst. That is the sound of the air coming out of the housing market. Existing home sales fell in February, following the lead of new home sales. The real weakness is, not surprisingly, in the condo market. All those speculators who had a great thing going for a couple of years have begun to bail out. As for single-family homes, the downturn is more restrained, though serious nonetheless. Total sales were the slowest in almost two years. Regionally, the Northeast and Midwest were off sharply, sales moderated in the West and they were up the South. Despite the weakening sales situation, prices did not falter very much and were actually up in the Northeast. But demand is dropping and supply is rising. It doesn’t take a Ph.D. in economics to know what the implication of that is: It’s Wal-Mart time – “Watch out for falling prices!”
4th quarter growth not so good
In their first revision, the revised GDP numbers were slightly up from their initial release. GDP was revised up to 1.6 percent growth vs. the previous 1.1 percent. Although, the figures were higher than first expected, GDP growth was still at the lowest levels in 3 three years.
This is nothing to be too concerned about. The GDP number will probably not have much impact in the markets. Economists believe that the 1st quarter 2006 is rebounding nicely and GDP growth is expected to rebound. Much of the drop off in growth is attributed to high energy costs and the Katrina and Rita Hurricanes.
If there is any significant impact to the mortgage markets, I'll post later on today. AP has some additional information if you’re so inclined. [
here]
Home Sales are down
Home sales are down across the US, but Houstonians don't care. We don't care because as
reported last week our home sales are up. It looks like the US housing boom is over. Let's hope we're on the cusp of a Houston housing boom. Here's an excerpt from the AP
report:
Sales of new homes fell for the second time in three months in January, providing further evidence that the nation's five-year housing boom is slowing.
The Commerce Department reported Monday that sales of new single-family homes dropped by 5 percent to a seasonally adjusted annual rate of 1.233 million units last month.
That was a bigger drop than analysts had been expecting and provided support to the view that the housing market, after setting sales records for five straight years, is slowing under the impact of rising mortgage rates.
The 5 percent January drop in sales followed a revised 3.8 percent increase in December and was the biggest setback since a 7 percent drop in November.
Rate Watch
Amazingly, mortgage rates dipped last week for the first time in five weeks. Not so amazingly, 100% of the
experts at Bankrate.com and yours truly were wrong about the direction they would move. According to Freddie Mac's
weekly survey, rates on the popular 30-year fixed rate mortgage were down 2
basis points to 6.26 percent. Other products were also down on the week. Rates on 15-year fixed-rate mortgages averaged 5.89 percent, down from 5.91 percent last week. One-year adjustable rate mortgages dipped to 5.32 percent, compared with 5.36 percent last week.
There are a couple of different reasons being floated for the decline in mortgage rates. First, there are growing concerns about world stability. With a failed bombing of Saudi Arabia’s largest oil terminal, growing concerns about possible civil war in Iraq, and continued uncertainty over Iran and Nigeria's respective futures, investors are less and less certain of the future course of events. When there is geopolitical uncertainty, investors will typically move their money to safer investments such as bonds and
Mortgage-Backed Securities (MBS).
Second, there are many who believe that the new Fed Chairman's performance over the past month has lent more confidence to the bond market. As expected, Chairman Bernanke will continue Chairman Greenspan's fight against inflation. After a higher than expected Consumer Price Index last week, this attitude is welcome in the bond markets. If bonds were Superman, inflation would be bond's Kryptonite.
The week ahead will be exciting as always. Of course we will all be watching the news and hoping for the best for our soldiers and allies around the world. We will also be watching the
economic calendar which has some of interesting goings on. New home sales will be released today and existing home sales tomorrow. These reports will be of interest to all of us in the real estate profession. I will update the
blog upon their release.
Also to be released tomorrow is the first revision of 4th quarter 2005 GDP numbers. GDP is the broadest based metric of economic activity. The vast amount of data that goes into this number is so cumbersome that it takes a few months to get it all together. This report is much anticipated, it has a strong impact on mortgage rates.
After GDP and Housing, we have a couple of moderately important reports. Personal Income and the ISM index are scheduled for Wednesday. Not surprisingly, the Personal Income report provides us with some data on income. The ISM index is one of the most important manufacturing surveys out there. The Institute of Supply Chain Management surveys 400 manufacturing firms on employment, production, new orders, supplier deliveries, and inventories. Both these reports will give us some insight into the health of our economy and its prospects for the future. Any unexpected results from these reports will produce mortgage market volatility.
I hesitate to say this but I think rates will probably go up this week. If not for any of other reason, than I believe that rates will rise over the long-term. The experts surveyed by Bankrate.com are split right down the middle, so lock or not at your own risk.
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Consumer prices soar in January
The Government
released their
Consumer Price Index (CPI) yesterday and January was a tough month to be a consumer. Most of the increase came from food and energy costs. CPI rose .7 percent while Core CPI (CPI excluding food and energy) was up only .2 percent. Core CPI was right on track while total CPI was up much more than expected.
Surprisingly, bond investors were unshaken by reports of higher than expected inflation. Apparently, they don't think much of rising food and energy costs. The yield on the 10-year Treasury was down 3 basis points from Tuesday's closing yield, to 4.54 percent, and the five-year yield was down 1 basis point, to 4.58 percent. That's good news in the short term, because we might see a drop in mortgage rates this week. However, I can't imagine this will turn into a trend. The Fed will more than likely continue to raise interest rates, and I believe mortgage rates will follow.
Houston's real estate market remains strong
The housing market in Houston was red hot in January. According to the
Houston Association of Realtors, total property sales were up 16.4 percent compared with January 2005. This is probably due to continued growth in the oil industry. As long as oil prices stay strong, I imagine we can expect strong growth in the Real Estate Industry. Here's a
synopsis of the
report from
Houston Business Journal:
The Houston real estate market experienced continued strength as 2006 began with the highest sales on record for the month of January. Many other parts of the country have seen weakness at the beginning of the year, but the Houston housing market is as strong as ever, with monthly records for sales, volume and prices, according to statistics released by the Houston Association of Realtors Multiple Listing Service. Total property sales for the month totaled 4,584, which was a 16.4 percent increase over January 2005. Properties sold during the month reached a total of nearly $775 million, an 18.6 percent increase compared to last year's more than $650 million
in January sales. The median home price for a single-family home reached $138,110, and the average price rose to $179,160, both increases from last year of 4.4 percent. Additionally, total sales for single-family homes in
Houston increased by 13.2 percent to 3,641 in January, up from last year's 3,217. "The greater Houston housing market should never be underestimated, as real estate has been one of the reliable backbones for the local economy for quite some time," says Lorraine Abercrombie, chair of HAR. "Signs are already surfacing that indicate 2006 will be another banner year for the real estate market in the region." Month-end pending sales of properties reached
4,349, which was up 19.3 percent from last year, and already signals a stronger February 2006, compared to 4,078 properties sold in February 2005. Houston's current median price of $138,110 is 34 percent less than the national median price, which reached $209,300 in December, according to statistics from the National Association of Realtors.
Minutes move Treasuries
Despite a very positive
Index of Leading Indicators (a measure of short-term economic performance), there was little action in the bond market this morning. Bond Traders were waiting for the Fed Minutes to be released. The
Fed Minutes are a written record of the Fed's most recent
Federal Open Market Committee meeting. When they were finally released, the bond traders didn't like what they read. Treasury bond yields rose slightly and that means mortgage interest rates will continue in the same direction.
The Minutes revealed a Fed that is still concerned about inflation. Inflation is the primary concern of the Federal Reserve, and their primary tool to curb inflation is raising the costs of borrowing. If tomorrow's
Consumer Price Index report shows the anticipated .05 percent increase in consumer prices, then you expect the Fed to raise rate once again. Although, the Fed's rate hikes don't directly affect mortgage rates, they tend to move in the same direction.
Rate Watch
As anticipated, rates ended higher last week. Freddie Mac's
weekly survey showed 30-year fixed rate products averaging 6.28 percent, up from last week's 6.24 percent. That average is the highest Freddie Mac has reported in 2 months. ARM's finished up as well. One-year adjustable rate mortgages increased to 5.36 percent this week, up from last week's 5.34 percent, and rates on five-year adjustable rate mortgages rose to 5.95 percent this week, up from 5.89 percent. The difference between Fixed Rate products and Adjustable Rate products remains minimal. In most situations, when taking rate versus risk into account, Fixed Rate loans are still advisable. The
yield curve remains relatively flat.
I think it is pretty safe to say that rates will be going up this week. The bond markets continue to be concerned about inflation and a Federal Reserve Rate hike. Ben Bernanke in his first hearing in front of Congress left the door wide open for an additional rate hike next month, and the release of the Producer Price Index revealed that inflationary pressures still exist. 100% of Bankrate's rate watchers
believe rates will rise this week.
Despite bond market gloom, reports revealed a healthy, robust economy. Housing Starts were up from the previous month, and 1st quarter GDP growth is expected to be strong.
This week's
economic calendar is full of excitement. The markets and the banks are closed today for President's day, so we've got a short week.
Tomorrow, the Fed Minutes from their previous meeting will be released. These Minutes reveal conversations that occurred during the Fed's previous meeting in which rates were raised. They could give us some insight about the Board's internal debate, and the possibility for future rate increases.
The Consumer Price Index will be released on Wednesday. The CPI is the most widely followed indicator of inflation. If the CPI is higher than expected, this can force mortgage rates up much higher. Inflation eats into the yields of bonds. It is the arch nemesis of bond investors and the Federal Reserve. The Producer Price Index was up higher than expected last week, so it will be interesting to see what happens. CPI's estimated increase is 0.2 percent, and Core CPI (CPI minus food and energy) is estimated to increase 0.5 percent. Let's hope that the consensus is correct.
A couple of Treasury Auctions will go down as well: the 1-year Treasury Note on Wednesday and the 5-year Treasury Note on Thursday. The market will be most interested in global demand for these securities. Foreign Investment in US bonds is a big reason we've experienced historically low rates over the past several years. If Foreign Investors back off of Treasury Notes, they might also back off of Mortgage backed securities (MBS). If demand is down, yields will have to go up in order to attract investors.
This week's Must Reads
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Home Construction surges in January
Despite rising interest rates, new home construction boomed in January. Blowing economist's estimates out of the water, construction of new homes and apartments was up 14.5 percent from December. Although many believe this increase was due to an unusually warm winter, new permits for construction rose 6.8 percent from December. New permits are considered a leading indicator for future construction. In the report issued by AP, there’s even better news for those of us in the real estate bidness:
Forecasters believe that sales of both new and existing homes will decline slightly this year and prices, which have been surging, will rise but at a slower pace than the double-digit gains seen in much of the country in recent years.
The National Association of Realtors reported today that the slowing in sales that started at the end of 2005 has yet to dampen price gains.
The Realtors found that 72 metropolitan areas around the country reported double-digit gains in median home prices for existing homes sold in the last three months of 2005, compared to the same period in 2004. That was a record level for areas reporting double-digit price increases, besting the old mark of 69. The biggest gain came in the metropolitan area that includes Phoenix, Ariz., where home prices shot up by 48.9 percent.
All of this is great news for the economy. It keeps the construction workers employed and it is an indication that the industry believes demand will continue. It does however mean we can probably see another rate increase by the Fed in the not to distant future.
Bernanke believes a rate hike might be needed
In his first appearance in front of a joint session of Congress, the new Fed Chief Ben Bernanke didn't ruffle many feathers. He reiterated statements by Fed officials that rate hikes might have used in a continuing fight against inflation, but prefaced these statements with a positive economic outlook. Here's what TheStreet.com had to say about it:
Bernanke noted that inflation pressures increased through the year and got worse when hurricanes ravaged the Gulf Coast, boosting energy prices, squeezing household budgets and raising business costs. "Nevertheless, the increase in prices for personal consumption expenditures excluding food and energy, at just below 2%, remained moderate, and longer-term inflation expectations appear to
have been contained."
"The hurricanes left an imprint on aggregate economic activity as well, seen, in part, in the marked deceleration of real GDP in the fourth quarter. However, the most recent evidence -- including indicators of production, the flow of new orders to businesses, weekly data on initial claims for unemployment insurance, and the payroll employment and retail sales figures for January --suggests that the economic expansion remains on track."
The bond market was up slightly on the day. Bernanke's testimony will continue today.
Sheetrock in short supply
Houston Real News reports that Houston is experiencing a massive shortage sheetrock and other building materials. Apparently many builders are loading up on building materials here and bringing them to Louisianna.
Although construction starts may be falling elsewhere around the country, in Houston and along the Gulf Coast business appears to be booming. Retailers of building materials, such as Home Depot, are experiencing shortages of sheetrock in Houston.
HoustonRealNews contacted five retailers over the city and found only who had a regular supply of sheetrock. The other four either had very little, were out of certain sizes, or were rationing their remaining inventory until another shipment came in.
One long-time Home Depot store clerk said these shortages were unusual 6 months ago. "They're buying big quantities and taking it back to Louisiana."
A Home Depot corporate spokesperson in Atlanta elaborated. Stores have discretion to ration if they so choose. Especially if they suspect a suspicious order, such as a contractor with a flatbed truck ordering 3,000 sheets of sheetrock. The spokesperson said such a purchaser is taking the
sheetrock straight to Louisiana to "scalp" it. "They're not exactly contractors are they."
Professional contractors rely on the retail outlets for everyday needs; running out of a staple such as sheetrock might change that behavior. Hence, some stores have begun to ration sheetrock.
Making sure many contractors get some sheetrock versus a few large customers getting it all will keep more of Home Depot's "regulars" coming back.
As the construction orgy in Louisianna accelerates, I imagine we can expect more stories such as this one. Hopefully, it won't lead to a situation in which home renovation costs increase substantially.
Shoppers buy a lot of things in January
Cash-out refinance are down, but consumers still have money to spend. Retail sales were up last month as consumers flocked to stores and bought things. The AP reports:
The Commerce Department said retail sales excluding autos were up 2.2 percent in January, the best showing in this category since late 1999. With autos included, retail sales rose by 2.3 percent, the best showing in 20 months. Overall retail sales had risen by a tiny 0.4 percent in December.
Analysts had been expecting a rebound, in part because the weather in January in the Northeast and Midwest was the mildest in more than a century. The warmer-than-usual weather meant that consumers, buoyed at not having to spend as much on home heating bills, trooped to the stores to redeem the gift cards they had received in December.
The 2.3 percent rise in total sales was the largest one-month gain since a similar increase in May 2004. The 2.2 percent increase in sales outside of autos was the biggest increase since a 2.5 percent surge in December 1999, a period when the U.S. economy was in the midst of the longest expansion in history.
The strength last month was led by a 2.9 percent jump in sales at auto dealers, the best showing since a 5.5 percent increase last November. Sales were also strong at department stores, furniture stores and clothing stores.
The report goes on to predict a strong 1st quarter for the economy. According to this AP reporter, some economists believe growth could surge to a 5 percent annual rate. There was little response to this report in the bond market. Treasury yields are slightly down from Friday's close.
Rate Watch
Last week, mortgage rates continued to slowly creep upward. Freddie Mac's
weekly survey revealed an average rate of 6.24 percent. Up only 1 basis point (a basis point is 1/100 of percentage point) from last week, this week’s jump was milder than that of the past couple of weeks. Bankrate's experts believe this trend will continue for the foreseeable future. Two-thirds of the contributors to their weekly
survey believe rates will continue to rise over the next 30 days.
Frank Nothaft, chief economist for Freddie Mac commented that this slow upward movement in rates will continue through 2006. "We see this trend continuing throughout 2006, with the 30-year FRM ending the year at about 6.3 percent as the housing market eases back from last year's record setting levels toward a somewhat more normal rate of activity.", he said. Mr. Nothaft's prediction is optimistic. Many economists believe that rates will finish the year as high as 7 percent. Of course anything can happen between now and the end of the year.
This week several scheduled events could prove to push rates one way or the other. The most exciting event is new Fed Chief Ben Bernanke's first testimony before Congress on Wednesday. The Fed Chairman testifies in front of Congress only twice a year and it can be a very consequential event when the Fed reveals new information or opinion. Barring an earth shattering release, this will more than likely become a study of Bernanke's style and personality in comparison to Greenspan’s.
Starting Tuesday, the
economic calendar will yield economic data each day. All of these reports will have moderate impact on mortgage rates. Tuesday, the Retail Sales report will be released. This report will measure the level of purchases by consumers, whose spending makes up about 70% of economic activity. Wednesday’s Industrial Production report will shift the focus to output by businesses. Thursday, we will see how higher rates have effected the housing sector with the release of Housing Starts. Finally, Friday’s Producer Price Index will give us some important information about inflation. The PPI measures the price increase in the intermediate goods used to manufacture finished products. It should be an interesting week.
This week's Must Reads
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Foreign appetite for US treasuries still strong
The 10-yr Treasury auction showed reasonably strong results, with foreign investors purchasing 41% of the issue. This alleviates fears of a possible pull back by foreign investors and central banks. Increased foreign investment in Treasury securities has allowed the US to maintain ridiculously low interest rates over the past several years.
The economic calendar for tomorrow contains an announcement on Jobless Claims, and the much anticipated 30-year Treasure bond auction. As stated in this
report by
MarketWatch.com, the Treasury has not auctioned off 30-year bonds since 2001. They are bringing back this security in order for corporations and governments to fund longer term obligations such as pensions.
NAR economists sticking with a slow down.
In a
press release issued by the
National Association of Realtors continued to predict a slow down for 2006. NAR's cheif economist again predicted a slow down in the home sales. According to David Lereah, home sales will stay historically strong, but under the 2004 or 2005 levels.
David Lereah, NAR’s chief economist, said the sales slowdown has already occurred. “Right now, home sales are a little lower than projected, but they can be sustained around current levels,” Lereah said. "Sometimes people lose sight of the fact that real estate is cyclical. Even so, sales will continue at a historically high pace with modestly higher interest rates as the year progresses, and 2006 is forecast to be the third strongest year on record.”
Existing-home sales are likely to decline 4.7 percent to 6.74 million this year, down from a record 7.07 million units in 2005, while new-home sales are expected to fall 8.5 percent to 1.17 million from a record 1.28 million in 2005; both sectors would see their third best year after the totals for 2005 and 2004. Housing starts are seen at 1.87 million units in 2006, down 9.3 percent from 2.06 million last year.
Mr. Lereah belives the 30-year fixed rate mortgage will rise to 6.9 percent at the close of 2006. As we
talked about a couple of weeks ago, NAR economists are rarely correct in their beginning of the year predictions. I do hope they're right about this one. I would be more than happy with the 3rd best Real Estate economy in US history.
Residents of the Freedmen's District not happy about new development
The Chronicle
reports that forth ward residents are not happy about proposed street closings by the city.
In the shadow of downtown skyscrapers, the Rev. Samuel Smith vowed Sunday to fight proposed street closings he says will shut off the remnants of the historic black Fourth Ward from new high rises developing in Midtown.
"We stand as a testament that we mean business," said Smith, with 30 members of his Mount Horeb Missionary Baptist Church standing behind him. "If you close these streets, it would be like cutting a main artery to the heart of the streets feeding the interior of the Fourth Ward." His brick church on West Gray is located across from two vacant lots destined to be the site of new high rises similar to the upscale rojects, bistros and shops adjacent to it. The developer of the two lots wants the city to close the block of Cushing Street that bisects his property as well as a section of O'Neil that cuts through another corner, records show.
In 1999, the same closures were requested by Post Uptown LLC, and tentatively approved by the City Council if the developer met certain conditions, including rerouting waterlines and constructing curbs and a barricade across the closed street.
I'm afraid this kind of issue is going to grow more and more prevalent as re-gentrification moves into the 3rd ward. Many townhomes are being redeveloped in that area, and its historically black roots are even deeper than that of the Freedmen's District. I can't say I blame these communities for their concern and disdain, but it is not in the nature of Houston to impede progress.
Rate Watch
As we discussed on Friday, mortgage rates were up at the end of last week. According to Freddie Mac's weekly survey, rates moved from the previous week's 6.12 percent to 6.23 percent. These are the highest rates we've seen since late December. The rise is attributed to last week's jobs report, which showed the potential for accelerating inflation and the Fed's 1/4 point increase in Fed Funds rate.
This week's economic calendar includes a couple of interesting Treasury auctions and the release of the international trade balance.
Treasury notes are sold at regularly scheduled public auctions, and two important ones are coming up this week. The 10-year and the 30-year Treasury auctions will be held on Wednesday and Thursday respectively. Both US Investors and Global institutions partake in these auctions. The US ec0nomy has been rather volatile as of late, and this might send investors and governments looking to non-US economies as safer bets to save their money. If the demand for treasury securities is low, this might trickle over to mortgage backed securities (MBS) as well. This would force sellers of MBS to increase yields in order to attract buyers. All of this translates into higher interest rates.
On Friday, the Bureau for Economic Analysis will release their report on International Trade. This report measures the difference between US imports and exports. The international trade balance has posted a deficit almost continuously since the 1980s. Typically, the higher the deficit, the weaker the dollar. When the dollar is weak, it costs more money to borrow it.
We should expect rates to go up this week. The Bankrate experts are pretty close to unanimous. 87% of them believe rates will continue to rise this week.
Mortgage rates rise sharply
After a strong job report and growing inflation fears, interest rates rose sharply. According to
Bankrate.com's
weekly survey of America's largest mortgage lenders, the 30-year fixed rose 11 basis points to an average of 6.28 percent. A basis point is one-hundredth of 1 percentage point. These are the highest rates that we've seen since the last days of 2005.
The combination of high economic growth and potentially higher inflation served to push rates higher. The strong Employment report showed an economy charging ahead, and most analysts are predicting the Fed will again hike rates another 1/4 of a point at their next meeting on March 28th. The Consensus on Wall Street was for an employment report showing 250k new jobs. The
report showed a gain of only 193K in January, but there were large revisions from December and January, which pushed the total new jobs announced to 274K. The Unemployment Rate was expected to remain flat at 4.9%, but instead fell to 4.7%.
As a real estate professional, I have mixed emotions about these developments. Obviously, it is a good thing that job growth is strong and employment is low: the stronger the economy, the more people who can afford to buy a new home. However, higher rates increase the affordability of a home, which is not good. There are reports this week that home prices are coming down, which could help with this affordability issue. However, these reports don't say much for the Texas market, which will probably remain strong and steady throughout 2006. According to an
article by
CNNMoney.com, Fiserv Lending Solutions, a provider of mortgage and consumer lending services, agrees:
Fiserv forecasts a significant stagnation in housing prices for the United
States in 2006 -- median home prices overall will inch up only 1.5 percent this year. And many metro areas will experience drops, including some of the largest, and most expensive, ones such as New York (down 2.43 percent), Los Angeles (down 3 percent) and Washington (down 1.9 percent).
Phoenix, one of the fastest-growing areas the past couple of years, is
another town too hot not to cool down. Fiserv predicts an increase of just
3.3 percent.
Some of the metro areas that have lagged over the past few years, however, may play a bit of catch-up. Fiserv forecasts Houston, where the median home price stands at a modest $145,000, to grow by 6.1 percent. San Antonio (median price is $138,000) should do even better, rising 8.3 percent. Memphis, where prices average $129,000, should see a rise of 7.8 percent.
Even though I think these growth numbers for Houston are strong, I think we're going to have a good year. Let's hope oil prices remain high, and the economy continues to expand.
This week's Must Reads
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