By Eldon Mast, on December 3rd, 2009
On Wednesday the Fed released its summary of comments received from its 12 regional districts in the November time-frame. The notes represent a collection of comments from businesses and other contacts outside the Federal Reserve and does not necessarily represent the views of Federal Reserve officials.
The regional reports indicate that economic conditions continue to improve across the U.S. since the last report and in general represent the best economic reports of 2009.
The good news highlights are summarized below:
Boston–results show signs of improvement. Some firms are starting to hire or plan to do so next year. Most businesses expect the recovery to take hold in 2010.
New York–The economy has gotten better. No indications of significant price pressures. General merchandise retailers say sales have improved. Signs of a pickup in tourism in New York City. District auto dealers reported a rebound in sales.
Philadelphia–Manufacturers reported an increase in shipments. Retailers indicate sales have been rising.
Cleveland–Staffing firm representatives report an uptick in job openings across a swath of industries.
Richmond–Housing, retail and banking economic activity increased. The residential real estate sector continues to benefit from tax credits for home buyers.
Atlanta–A majority of retailers described activity as exceeding their modest expectations. Office, industrial markets, and commercial construction finally showed signs of bottoming out at low levels. The pace of layoffs has slowed.
Chicago–Economic activity is up. Business spending included an increase in temporary hires.
St. Louis–Economic activity showed signs of improvement. The sales outlook among the retailers for the rest of the year shows 58 percent of the retailers expect sales for the rest of the year to increase or remain unchanged over 2008 levels.
Minneapolis–Overall economic activity was up. Services, manufacturing, energy, mining and residential real estate actually saw moderate increases and consumer spending has stabilized. Labor markets showed signs of improvement.
Kansas City–The economy expanded modestly in October and early November. Retail sales increased and were expected to keep doing so. Manufacturing grew moderately. Residential real estate recovered further.
Dallas–Economic conditions have firmed over the past six weeks. Activity improved in several industries, such as high-tech manufacturing, paper, petrochemicals, staffing services, housing and energy.
San Francisco–Economic activity appeared to pick up modestly. Consumer demand showed signs of improvement. Agricultural producers reported stable sales. Demand for housing showed further modest improvement and banking contacts reported largely stable loan demand.
Overall the economic recovery continues to build momentum.
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By D H Smith, on August 4th, 2009
I have mentioned my misgivings with the Case-Shiller 20 City Real Estate Index before, but everyone now hangs on it monthly and I have had to get on board too.
I have also mentioned that I am a real estate agent in New Jersey with access to the MLS data here, and a keen follower of the trends in local markets.
Case-Shiller was reported on Tuesday this week for the latest month (May). The news was all positive, confirming a four-month improving trend. The index rose one-half of one percent from the April reading, the first rise since 2006. Prices were higher in 13 of the 20 cities surveyed. The year-on-year statistic was 17.1% lower, but that is the first reading better than -18% in several months.
I don’t believe anyone wants to forecast a big uptick in prices — a V-shaped recovery — but a lot of people are making the bold call that the residential market is at a bottom. For anyone who may have caught the bottom, congratulations! You know the hardest thing to do is to time a market bottom so precisely.
Lately I notice a lot more inventory “under contract”. The Case-Shiller data sent me to the MLS to do my usual selling rate to inventory analysis and find out whether macro data confirm anecdotal experience. Do they ever. What I found is that the months of inventory in the local markets I follow has absolutely crashed. In the spring, we were at 10-11 months to clear the active standing inventory. Currently it is more like 5-7 months. Five month’s inventory is comparable to the sellers market of a few years back. Wow!
Is there any reason to think the more active market is a blip rather than a trend? I can think of two. One is the action of the $8000 first time home buyer credit, which expires at the end of November and will not be extended. If you want to capture this, you’re running out if time. The other is the regular action of the calendar — every year sales pick up in the spring and close in the summer so that children can be situated in their new school districts for autumn. So let’s keep an eye on this to see whether it has legs or causes disappointment later on.
By Eldon Mast, on June 25th, 2009
Tuesday we reviewed a dozen areas where home prices are rising. Wednesday yielded the release of home sales data with three more significant pieces of great news.
1. Sales of previously owned homes rose for the second month in a row in May. The improvement was 2.4% better than the sales rate in April.
2. Inventories of existing homes continue to decline rapidly. Inventory levels are now below the 10 month mark for all existing homes for sale. That level is down over 15% from a year earlier. There is now only a 9 month supply of existing single family homes on the market.
3. What may be the best news in Tuesday’s home sale data is the fact that the number of distressed sales has drop precipitously. Earlier in the year close to 50% of sales were distressed. May’s data shows that level down to 33%
It is no wonder then that home prices in many cities are beginning to recover.
By Eldon Mast, on June 24th, 2009
One reader contacted me last week with her good news. She said, “Have a look at the letter from my bank. It looks like good news to me!”
I later found out that this reader originated her adjustable rate loan five years ago on a new California home purchase. She was aware at the time that the interest rate would adjust in 2009. “Back then, 5 years seemed like a long time. I can’t believe it is now 2009.”
I quote directly from her bank’s letter with her permission:
This notice is to inform you of upcoming changes to your adjustable rate mortgage loan interest rate and payment. The rate change date for your loan is July 01, 2009, with a new payment effective date of August 01, 2009. The next adjustment will occur in 6 months.
The installment due on your loan will be adjusted from $1,329.83 to $886.55.
The index value used to determine the interest rate has changed from your origination rate to 1.24000%. The current index value was published on 06-01-09. This is the selected index value for the index known as the “6 MONTH LIBOR 1ST BUSINESS DAY (WALL ST. JOURNAL).” Effective with your August 01, 2009 payment, your interest rate will be adjusted from 5.25000% to 3.5000%.
If you have any questions regarding this notice please contact our Customer Service Department.
She further commented, “Even though the market value appears to have dropped for my home in the last five years, this monthly adjustment to my budget is quite welcome. I may use some of that $450/month toward a new car payment or toward paying down additional principal on that mortgage. This month, I am just going shopping.”
LIBOR index rates continue their historical lows. This week’s 6 month LIBOR is down even further at 1.16% and the 1 month LIBOR at 0.32%. It appears likely that our cheerful reader may have additional monthly funds available at her next adjustment six months from now.
When ask what she would do with even a further decrease in her monthly housing costs in late 2009 she said, “It could be a very Merry Christmas.”
If anecdotal news and letters like this become at all wide-spread, it could mean further gains for retail summer sales, continued foreclosure declines, and may give the beleaguered auto industry something to really cheer about.
By Eldon Mast, on June 23rd, 2009
Repeatedly we said that the strength of this recovery will be measured in part by how well the housing industry fares.
Recently we’ve seen:
1. Homeowners with more manageable monthly payments
2. Housing starts bounce up
3. The number of foreclosures begin to fall
4. Jumbo mortgage activity increasing
5. Pending home sales jump up
6. Existing home sales rising
It is no wonder then that home prices in many cities are beginning to recover.
See the chart below for a dozen cities all across the country reporting significant price bounces already this year.
(Source: Zillow)(click to enlarge)
By D H Smith, on June 19th, 2009
In March, I contributed a piece called “The Coming Real Estate Recovery By The Numbers”. I have also written extensively on various plans for real estate recovery policy, my own and other people’s, and the phone has not not stopped ringing.
Well, I am among other things a real estate salesperson. Most of my work has been investment and commercial in the urban areas of northern New Jersey, but I do residential, I go out of my local market, and have trusted contacts all over the east coast and in California. At the moment I am working with a couple who have two young children and want to buy in one of the elite towns with a top-rated school system. They have very particular requirements with respect to price, condition, proximity to public transportation, and several other factors. Even in a buyer’s market, these limitations make the search challenging.
The action of several recent weekends and the treatment of various offers makes me believe that conditions are moving away from buyers having it all their own way.
On one miserable cold and wet Saturday morning, we found ourselves queuing up to see a new listing that had come on the market at the extreme low end of the price. The wife was hopeful. “It must be a wonderful opportunity at such a low price, and with so many people come to see it.” Inside, what a let-down. Dirty, small, poor condition. Garbage, even at the price. And yet the couple who viewed it before us stood across the street in the rain after finally letting us go in, with the husband gazing longingly at it all goo-goo as if it were Megan Fox in her birthday suit instead of a knock-down. The house went under contract immediately, probably to them. If they got any competition for it, no doubt they paid more than asking.
My clients did not compete for this house. On the next one they saw, they did, through not one but two rounds of “best and final” offers. This house had the following good points: clean and tastefully decorated living room, dining room, and three good-sized bedrooms, all with good re-done hardwood floors. And the following bad points: lousy bathrooms, lousy kitchen, central air on its last legs, and washing machine separated from dryer by 25 feet of dirty unfinished basement. On balance I rated this house just OK, nothing special, and yet if the listing agents are to be believed (I make no judgments) there were a dozen offers. My clients’ full-price offer with 20% down and no house sale contingency was not successful.
If that sounds more like sellers’ market conditions, so too did the response of sellers through their agent to my clients’ next offer. They bid on a house they liked at 95% of asking price. The sellers countered at 99.6% of their asking price, essentially throwing my clients’ offer back in their faces with little consideration. Moreover they told us not to come back without meeting a number of onerous conditions that are not customary in this market.
Guess what? We did not meet those conditions and we did not go back. (My clients found something else and had their offer accepted.) A few days later the agent called, and was rather miffed that we had done exactly as they told us.
At current rates, the inventory in this town will take 10.3 months to clear compared to over 11 months around the county, but there are micro-markets within the town that are much hotter than that and the behavior of buyers and sellers has to adjust accordingly.
There are other factors to note. One, the $8,000 first-time homebuyer tax credit is going away soon if nothing is done, and the direction of policy-making in DC suggests nothing will be done. That provides impetus in this segment of the market, at least. Two, rising mortgage interest rates can also get buyers off the fence, if they have been hanging in for lower rates and instead see them going the wrong way.
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By Eldon Mast, on June 18th, 2009
U.S. home builders started construction on many more residencies than expected in May. The Commerce Department reported that housing starts increased by 17%. Building permits also rose 4% — significantly more than expected. The increase in starts was punctuated by a 29% surge in the West.
As this recovery begins we’ve continued to look to strength in the housing sector as an indication of how strong this recovery will be. Sales of new and existing homes increased in April and buyers signing contracts to buy previously owned homes has now risen for three straight months.
Home prices are now at record affordability levels across the country. First time home buyers are also rushing to take advantage of the $8,000 tax credit included in Obama’s stimulus plan.
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By Eldon Mast, on June 15th, 2009
As this recovery begins, all eyes will be on the housing markets as a gauge for just how strong this return to growth will be.
Of particular note is the jumbo mortgage market which is now springing back to life.
A jumbo mortgage is a home loan with a lending amount above the industry-standard definition of conventional conforming loan limits. With some exceptions, this means an amount above $417,000. A loan in excess of $650,000 is typically referred to as a super jumbo mortgage.
Banks have now resumed underwriting wealthy clients in both of these categories. In fact jumbo activity seems to be brewing even with a limited secondary market for these large payback notes.
For instance, Bank of New York Mellon’s wealth management division reports a resurgence in its high-end lending activity. “We’ve seen significant growth,” says Erin Gorman, their national director of sales. Through the end of May 2009, BNY Mellon’s jumbo lending activities are up 32% by dollar volume compared to that same period in 2008. In the first quarter of 2009, BNY’s average loan balance bounced by 23% compared to the first quarter of 2008.
Another example is found over at Coldwell Banker Residential Brokerage. In the Boston market alone 36 properties of $1 million and up went under contract in March. That figure nearly tripled in May, jumping to 105 mega residential deals.
Mellon’s Gorman currently is observing that her competitors are indeed returning to the jumbo market as the economy recovers. She notes that during the recession, “we earned a reputation as the go-to player in jumbo mortgages. And that puts us in a strong position as other lenders gingerly move back onto the field.”
BNY Mellon (BK) is one of the 10 large banks announcing that they will begin repayment of their TARP bailout monies to the US Treasury.
By Vipin Veetil, on May 28th, 2009
An Economic Times article today, titled “Slums and economic stimulus”, says
“If slum dwellers could be given property rights that are heritable but inalienable to the land on which they now have their make-shift homes, if these title deeds provide for being used as collateral, then immediately all of these people become eligible for drawing on the new housing loans…
The grant of property titles to the urban poor is again already part of India’s public policy. The Jawaharlal Nehru National Urban Renewal Mission (JNNURM) explicitly advocates security of tenure at affordable costs as the first of a seven-point charter for the urban poor, which means housing improvement through assignment of property rights.
This recommendation in JNNURM has in turn been influenced by the experience of countries of Latin America of assigning property rights in favelas and barrios, Turkey in 1983 for its slums called gecekondu and the accepted logic that titles to homesteads is an effective route to improving housing and environment conditions in poor urban localities. Efforts at “social housing” through parastatals like state housing boards have not been able to address the problem in any large scale. ”
A great idea I think, unfortunately the author gets all mixed up with the nonsense of fiscal stimulus and government intervention. The basic idea is that slum dwellers dont invest in their property because there is no guarantee of being able to retain the future payoffs from their investments. Also, private firms cant buy large tracts of slum land to develop it. Hence poverty sustains itself.
This also explains why many slum dwellers would rather buy a TV than build a toiled, when the government goons come to break down your home, you can run with a TV but the toilets got to be left behind.
De Soto “Mystery of Capital” is a good book to begin with. He essentially argues that lack of property and contracts mean that literally billions of dollars worth of property is simply lying dead, instead of being entrepreneurially transformed into productive resources. The other side of the coin is the “Mystery of Labor”, why do the poor remain poor despite working hard for long hours. Its partly because they cant invest their small savings in high payoff projects. And partly because they cant borrow money despite having high payoff ideas. Both problems originate from lack of property titles, which means they cant back their contractual obligations and banks dont have a safeguard to lend against.
And of course there is nothing new in this. The whole history of industrialization can be captured in two words (1) property and (2) contracts (needless to say, the socialists and fascist at Delhi University dont teach this). Private property is merely a system where it is legal for people to help themselves!
Lastly, we dont need to worry too much about how to allocate property rights to slum dwellers in India. The Dharwi Slum Authority in Mumbai already has designed some kind of finger print reader or biological mapping device which they use to establish who lives where, and then use the information to reallocate land. Instead of this whole reallocation process, why not just assign property rights.
And if the socialists amongst us are not convinced enough, I propose an experiment. Choose any slum in India, and allocate property rights to the residents. And then compare this area to other slums five years hence. That ought to dispel any doubts.
  
By D H Smith, on April 20th, 2009
Here’s a new plan for America’s housing problem called the Household Initiative Plan. It’s called that because of all the plans out there it is the only one that asks little of the Treasury, Federal Reserve, or other government agencies besides non-interference in what millions of responsible householders could do for themselves on their own initiative.
My Household Initiative Plan will act to revive the real estate market by attacking three parts of the problem together. It reduces the unsold housing inventory and arrests the decline in home prices by helping liquidity re-form in the real estate market. It does this by making available an untapped source of capital that has previously been hard to access: the IRAs, SEPs, SIMPLE and Keogh plans of American retirement savers. According to the Investment Company Institute, there were over 46 million of these retirement accounts at the most recent survey in 2007, holding an incredible $4.5 trillion. No doubt some has gone in the financial market collapse, but it is still a great deal of money even by current jaded standards.
While it has been possible to buy real estate with IRA funds all along, the heavy restrictions and complicated regulations have kept people from doing so. This plan calls for suspending the restrictions and regulations on the use of IRAs for real estate purchase.
At present, if you buy property through your IRA, you do not own the property, the IRA does. You cannot pay the taxes and maintenance expenses of the property, the IRA has to have enough funds to cover them. You cannot make personal use of the property while the IRA owns it, it must be held only for investment until distribution upon your retirement. You cannot manage the property, the IRA trustee has to designate a manager. You cannot collect rents, they have to be paid to the IRA. You can apply monies from more than one IRA account to the purchase and expenses, but in effect you cannot buy the property with a mortgage simply because no lender is going to have IRA accounts as mortgagors.
At least for the duration of the economic crisis, why not liberalize and simplify the system, so that more people might take advantage of low real estate prices using IRA money that they have but would not think to use for this purpose? Let’s allow people to take as much of their money as they want out of IRAs, SEPs, SIMPLE and Keogh plans, without taxes or penalties, for any real estate purchase – investment property or principal residence, first, second, or seventh home. They can then write contracts and take title as real persons in the regular way, without the complication of having a trustee execute these instruments on behalf of the IRA. Subject to market conditions and substantial down-payments, buyers should be able to get mortgages for regular-way purchases.
Let’s permit buyers using IRA funds to pay property taxes and maintenance expenses and collect any rents of the property either personally if they prefer, or through the IRA if they can. On an investment property, if they receive net investment income personally, it can be taxable, if through the IRA, then not. That will provide an incentive for directing investment income back to the retirement accounts. If the property is used as the principal personal residence of the owners, the normal mortgage interest deduction can apply. If it is a vacation home, then perhaps disallow that, because there has already been a tax advantage conferred by the liberalized use of the IRA monies.
If a property paid for with IRA funds is sold before the owners’ retirement, there are at least two sensible ways of handling the net proceeds. They can either go into another property without any capital gains tax but also without the further complication of a Section 1031 Exchange. Or the proceeds can return to the IRA, without fees, taxes, or penalties. Also – and this is important – if the account holders suspended IRA contributions after their property purchase, they should be permitted to catch up on their contributions and top up their accounts to the full extent that they could have funded their accounts under IRA rules.
The idea of my Household Initiative Plan is to make things easy for people to choose to use their IRA assets to buy real estate now. It removes the preference for financial assets over real assets and places both on a level playing field. Financial experts will object that retirement-minded investors should prefer stocks at today’s low prices. However, real estate is also very cheap now, particularly in popular retirement regions of the southwest and southeast, and there is no way of knowing whether houses or stocks will treat people’s money better in the coming years. As they always say, past performance is not an indicator of future results, but it is noteworthy that even after its sharp decline, the broad real estate asset class has performed better than the S&P 500 over the last ten years.
The key point at this time of financial uncertainty is this: The people’s money in IRA accounts belongs to them, and it should be their free choice to do with as they think best. If their choice can help the national prosperity as they prosper themselves, and at no additional public expense, what could be better for the general welfare?
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