“If we do not learn to live together as friends, we will die apart as fools” – Martin Luther King
NEWS & HEADLINES
In a recent article, Caroline Baum pointed out that the yield curve “says” that there will be no recession. “With the Federal Reserve’s benchmark rate at zero to 0.25 percent and the 10-year Treasury note yielding 3.06 percent, the spread between the two interest rates is among the widest in history. It’s the reverse configuration (an inverted yield curve with short rates above long rates) that augurs recession… When the yield curve is steep, as it is now, it’s an inducement for banks to expand their balance sheets — borrow short, lend long — and increase the money supply. That bank credit isn’t growing now owes more to the hangover from a period of excess leverage and new-found religion on lending standards than any restrictive policy on the part of the Fed…A $15 trillion economy doesn’t turn on a dime. Listening to the media, you’d think that one day inflation is ready to take off and the next the economy is struggling to stay afloat.”
The ADP Private Sector Employment number only increased by 38,000 in May, far less than the 175k that was expected. But remember that the ADP number, while it grabs headlines, is of dubious predictive ability for tomorrow’s government-produced employment number. Over the last 6 months alone ADP’s initial figure has ranged from understating the gain in jobs by 5k to overestimating it by 184k!
But the ADP only started the market moving yesterday, making everyone who locked in a loan earlier in the week wish that they hadn’t. The ISM Purchasing Managers’ index fell in May, and was much lower than expected. In fact, it was the lowest reading in a year. Construction Spending increased 0.4% in April although during the first 4 months of 2011, construction spending is 8.4% below the same period in 2010. These components, pointing to a slow economy, moved stocks lower but pushed 10-year UST note yields below 3% for the first time in 2011. Generally speaking, a slow economy helps keep rates low – but is that what the mortgage industry really needs? Low rates help, but be careful what you wish for.
10 REASONS TO ATTEND REAL ESTATE CONNECT SF
The industry event of the year, Real Estate ConnectÂ®San Francisco is fast approaching – so what are you waiting for? Here are 10 reasons to lock down your spot at this summer’s hottest ticket.Register online now!
10. Fabulous 15: It’s our 15th anniversary! Help us celebrate in style. It’s a milestone achievement and we’ll mark the occasion with an unparalleled event.
9. Sparkling San Francisco: Spend your free time (or an extra day) enjoying our host city’s famous cuisine, phenomenal scenery, and fantastic attractions.
8. Killer Keynotes: Want big names? We got’em! Our featured speakers include David Pogue of the New York Times, author and social-web expert Brian Solis, Virgin America CMO Porter Gale, and HootSuite CEO Ryan Holmes.
5. Trailblazing Brokers: Meet the brokerages of the future – five groundbreaking companies that’ll change the way we think about the real estate business.
4. New Kids on the Block: We’ll unveil the coolest companies you’ve never heard of in this annual panel, always a Connect must-see.
3. Generation Next: Learn strategies and tactics to attract and target the growing and increasingly critical under-44 demographic.
2. The Innovator Awards: We’ll hand out top honors in seven categories, including Most Innovative Brokerage or Franchise and Most Innovative Website or Web Service. Which of your peers will win?
1. All-Star Attendees: All the top names in the industry will be here – it’s the ideal place to meet, greet, and exchange ideas.
HOME PRICE BARGAINS COMING THIS SUMMER
Home prices are already a third off their highs, but this summer could bring the real discounts.
Buyers are still cautious, and anxious sellers will have to price aggressively to get them off the fence.
That could result in a “summer clearance sale,” predicts Pete Flint, CEO of Trulia, the real estate web site.
“We don’t imagine a stampede of buyers, like outside of Macy’s on Black Friday,” he said. “We see this more akin to January sales where retailers are trying to get rid of stock before it gets stale.”
Several factors, he said, will lead to blow-out prices: Accelerating price drops: Home prices have already reached their lowest level since the housing bubble burst, and are now at 2002 levels. Sellers will feel the pressure to make deals before their homes lose even more value. Bloated inventory: There are boatloads of homes on the market, more than eight months worth at the current rate of sales. Many are distressed properties — short sales and bank repossessions. Such homes are selling at discounts up to 50%. Tight credit: Some homebuyers still can’t obtain mortgages, limiting demand. Unemployment: While the job picture has brightened, unemployment is still around 9%. People without jobs don’t buy homes, obviously, but high unemployment also rattles working people. Lacking the confidence that their jobs are secure, they may not look to buy.
These forces could all come to a head this summer, according to Flint, because of the cyclical nature of homebuying. Buying takes off in spring as many young families hope to make their moves before the new school year.
“By the end of the homebuying season, sellers will become increasingly desperate,” said Flint.
Adding to already swollen inventories will be a flood of new distressed properties poised to hit the market.
“By the summer, most of the ‘robo-signing’ delays will be over and more distressed properties will be on the market,” said Celia Chen of Moody’s analytics.
Many banks had slowed foreclosure proceedings until they made sure that paperwork was in order. That put hundreds of thousands of homes into foreclosure limbo: Borrowers were no longer making payments in many cases, but were allowed to remain living in the homes.
There’s little urgency for buyers to act in this stagnant market because no one expects prices to turnaround, according to Ken Johnson, a real estate professor at Florida International University and co-author of a new study on whether it’s better to buy or rent. Realizing that home prices will likely get even better, buyers can wait for even better deals.
“If people think we’re at the bottom of the market, they’ll act,” he said.
All the experts, however, are telling buyers that prices will continue to erode all through 2011. Even after that, no one is predicting outsized price gains.
“There will be a lousy housing market for another year or two,” said Michael Larson, a housing analyst for Weiss Research.
Even if we’re at or near the bottom, buyers are unlikely to see prices rise much if they wait.
“I myself continue to rent,” said Johnson. “I know that even if I don’t buy for a year, it’s no big deal. Who cares if I miss the bottom if prices only go up a couple of points or so?”