Tuesday, February 14, 2012

Mortgages Do Matter..So Do Home Sales


As with the entire recovery, not everything comes in a straight line.  Jim Belote in his "Mortgage Matters" notes that improving real estate market continues. Yet, it depends on, as he points out from various sources, whether we are talking new home starts(up), prices(still lagging) or unit sales(not addressed specifically but in Hampton Roads increasing every month).


So what to do??  Focus on the good news!!!  


           Prices Awesome


                Mortgage Rates Spectacular


                     Fewer Short Sales and Foreclosures 


                          Builder Confidence....MORE NEW HOMES!


Note the important reports planned for the upcoming week!


Always the SMART MOVE!



Keeping you updated on the market! For the week of 
February 13, 2012

MARKET RECAP
Last week we were a little down on the latest spat of housing data, which showed home prices in many burgs resorting to old form –that is, falling.  CoreLogic, Zillow and Case-Shiller all posit that home prices in many metropolitan regions had slipped a couple percentage points in the fourth quarter of 2011.  
For the past half-year or so, we've been saying that the bottom is at hand, if it hasn't already been passed.  In many areas of the country, that is the case: prices are moving higher.  Real estate markets, we are quick to note, are local markets.  
When speaking of bottoms, there is actually more than one: there is a bottom for prices, a bottom for starts and a bottom for sales.  These bottoms won't necessarily occur simultaneously, but there must be some synchronization.  If you are a homebuilder, you are not going to add to inventory if you think prices remain in a downtrend. If you're a buyer, you're not going to buy if you think a cheaper price may be available down the road.  
Because their livelihood is tethered to prices and demand, homebuilders are worth watching. On this front, we like what we see.  Sentiment is improving, and Bank of America analysts expect residential construction to increase 15 percent this year, bumping average annual starts up to 710,000 units.  You don't ramp up production if you think prices are in a downtrend.  
Of course, homebuilders must contend with shadow inventory, REO and foreclosed properties, which many pundits expect to hold price increases in check.  It's worth noting, though, that many shadow properties were sold to subprime borrowers and many have been abandoned for a considerable amount of time –to the point where they are reclamation projects for only the handiest of handymen.  
Many of these homes will likely just go away.  In fact, 300,000 homes are lost through neglect, abandonment, natural disaster and demolition each year.  We wouldn't be surprised to see that number rise as we get farther away from the subprime meltdown years of 2007 and 2008, thus we'll see more supply removed from the market.  
Despite the current price travails, we remain convinced that residential real estate will be a top performing asset class over the next decade.  Bubbles that pop produce a lot of value.  Technology stocks are a recent example.  Had you purchased technology stocks a couple years after the Internet bubble burst in 2000, you would be sitting in very high cotton today.      
Unlike stocks, real estate can be readily mortgaged. Given today's multi-decade low mortgage rates, many buyers are better off financing rather than paying cash for their purchase.  
The mortgage market has been driven by refinances over the past couple years.  We would like to see more of it driven by purchases.  The good news is we expect that to be the case in 2012. 

Economic
Indicator
Release
Date and Time
Consensus
Estimate
Analysis
Retail Sales
(January)
Tues., Feb. 14,
8:30 am, et
0.9% (Increase)
.Important.  Consumers are increasing their borrowing and spending, which reflects growing economic optimism.
Import Prices
(January)
Tues., Feb. 14,
8:30 am, et
0.5% (Increase)
Moderately Important. A strengthening dollar is holding down consumer price inflation.  
Mortgage Applications
Wed., Feb. 15,
7:00 am, et
None
Important. Lower rates are again fueling refinances, but purchase activity is also inching higher.    
Home Builders Index
(February)
Wed., Feb. 15,
7:00 am, et
26 Index
Important.  Improving homebuilder sentiment points to a stronger housing market in 2012. 
Housing Starts
(January)
Thurs., Feb. 16,
8:30 am, et
690,000 (Annualized)
Important.  The five-month average is moving closer to 700,000 annualized units.
Producer Price Index
(January)
Thurs., Feb. 16,
8:30 am, et
All Goods: 0.6% (Increase)
Core: 0.3% (Increase)
Important.  Producer prices are increasing at a rate that could translate into higher consumer prices. 
Consumer Price Index
(January)
Fri., Feb. 17,
8:30 am, et
All Goods: 0.3% (Increase)
Core: 0.2% (Increase)
Important.  The expected CPI gives the Federal Reserve leeway to continue its low-interest-rate policy.

Properly Understanding Market Risk
One of the hang-ups in housing these days is that too many people view the market as risky.  They read news on falling prices and they remain on the sidelines. They think that because prices have fallen prices will always fall. They extrapolate the present indefinitely into the future.  
It's impossible to call a market bottom, but no gets in at the bottom or gets out at the top anyway.  The fact is the housing market today is far, far less risky than it was six year ago.  It just doesn't feel that way, because the sting of yesterday is still felt in the market today.  
Risk isn't buying a home and then seeing its value drop 2 percent the first year after you've purchased it.  Real risk is the unseen.  Real risk is buying a Las Vegas home in 2006 after prices had doubled over the previous five years, and then, when no one was expecting, see prices fall 60 percent over the subsequent five years.  
Real risk –massive, fast-paced, and destructive– is always and everywhere underpriced.  Perceived risk is the opposite: it's always overpriced.  If everyone perceives the same risk, little risk resides in that perception. 


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