Market Monitor by Tim McLaughlin

Focus on Housing by Tim McLaughlin

 

The number of owner occupied homes reached 75,076,000 in the third quarter, increasing from 74,832,000 in the second but down from 75,251,000 a year ago, the Census Bureau reported last week. At the same time, the nation’s homeownership rate remained at 65.5 percent. The number of housing units in the third quarter was 132.8 million.

 

To put that in historical perspective, in the first quarter it was 65.4%, the lowest since the first quarter of 1997, when the rate was also 65.4 percent. The homeownership rate peaked at 69.2 percent in the second quarter of 2004. The rate measures the proportion of households owning their primary residence, computed by dividing the number of households that are occupied by owners by the total number of occupied homes. The Census Bureau also reported the homeowner vacancy rate fell in the third quarter to 1.9% nationwide, down from 2.1 percent in the second quarter and 2.4 percent one year ago. The homeowner vacancy rate-the proportion of the homeowner inventory for sale that is vacant for sale-is at its lowest level since the third quarter of 2005. The rental vacancy rate-the proportion of the rental inventory that is vacant for rent-in the third quarter remained at 8.6 percent, the lowest level in 10 years, underscoring a shift in housing patterns.

 

The number of housing units for sale in the third quarter was 1,476,000, down from 1,595,000 in the second quarter and 1,862,000 in third-quarter 2011. The homeownership rate for older Americans (over 65) fell in the third quarter to about 81%, and for younger Americans (under 35) fell to about 36%.

 

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Frank Blake, CEO of Home Depot Inc., used a Tuesday conference call announcement of the company’s third-quarter profits to voice his approval of an improving housing market that is overcoming lingering challenges. “We can start to see the housing market as an assist to our growth rather than an anchor. We are starting to see the recovery of the housing market. The harder-hit areas that were really the epicenter of the housing crisis appear to be on the mend, and it’s been constructive, and it’s been consistent.”

Election Post-Mortem by Tim McLaughlin

 

President Obama was re-elected for a second term as President, with Democrats retaining the Senate and Republicans maintaining control of the House. Although this outcome returns the status quo, this has important implications for the economy and the markets. Specifically three issues: 1) Fiscal Cliff, 2) Fed Policy, and 3) Housing Policy.

 

Fiscal Cliff: Returning to status quo likely means all sides see the voters as supporting their views, which means reaching compromise is not likely to get any easier. Moreover, the divisions between the Republican House and Democratic Senate remain. This means that negotiations around the fiscal cliff will be challenging and uncertainty can linger in the business community. We see the risk that we temporarily fall over the cliff to be larger than it would be under a Romney victory. President Obama has called for tax increases for the upper income bracket, which the Republicans have resisted. If Republicans do not concede ground on this issue, then the risk rises that Democrats allow the Bush tax cuts to all expire in order to push their own “middle income tax relief” plan.

 

Fed Policy: Fed Chairman Ben Bernanke’s term is set to expire in Jan 2014. We believe President Obama would consider renewing his term. If Bernanke were to decline to stand again, we would expect current Fed policy to continue under a similarly sympathetic Fed Chair, such as Janet Yellen – who would be acting Fed chair anyway until a Bernanke replacement is confirmed. The FOMC voting members will be particularly dovish in 2013, and we expect the Fed to continue to buy $45B of Treasuries (outright) even after Operation Twist ends at year end.

 

Housing Policy: There is a chance that President Obama may chose to appoint a new acting director for the FHFA during the recess period. This would be an opportunity to replace Edward Demarco, who has been working to shrink the presence of the GSEs in the mortgage market, with someone who is more willing to put in place additional housing stimulus. The risk is that President Obama will see the appointment as counter-productive to negotiations around the cliff and will not want to take that risk. If Obama were to appoint a new FHFA chair, he or she would likely be more willing to accommodate additional housing stimulus. This could take the form of greater mortgage refinancing, slower increase in guarantee-fees and more aggressive modifications. However, there are limits to how much additional stimulus can be put in place given the mandate of the FHFA to minimize taxpayer losses while the GSEs are in conservatorship.

 

The focus will clearly be on the lame duck Congress the next 10 weeks and what can be done to avoid the fiscal cliff and manage the debt ceiling short term.

After Sandy by Tim McLaughlin

For the first time since the 1888, the New York Stock Exchange was closed for two consecutive days (Monday and Tuesday) based on weather related conditions. We had seen the exchange closed on consecutive days as recently as September 2001 for non-weather related events, but the 124 year streak of braving the weather came to an end earlier this week.

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One of the most common refrains heard after a natural disaster such as Hurricane Sandy is that the rebuilding efforts will boost economic activity. Measured GDP does benefit from rebuilding efforts, but the effect takes time and does not necessarily boost economic well-being.

Economist Frédéric Bastiat referred to this paradox as the “Broken Window Fallacy”, which asserts that if someone breaks your window and you pay someone to fix it, that adds to GDP, but you personally are not better off for the experience. Adding insurance to the process lessens the sting somewhat, but still results in the loss of national wealth and quite possibly higher future insurance premiums.

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Six positives things from a hurricane:

1) The seashell collection thrown to the shore is wonderful afterward

2) They give surfers something to do pre-storm

3) They prune the trees, removing dead branches and other debris

4) They bring families together both in preparing, riding it out, and cleaning up afterward

5) They bring communities together in helping each other rebuild

6) They bring people outdoors to actually meet and talk with their neighbors — whether or not you thought you had anything in common with them. After a storm, you now have something in common.
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“We ARE family. We will all get through this together, and we will be stronger and closer because of it” – Anonymous

 

The Financial Cliff and the Debt Ceiling by Tim McLaughlin

 

I have received a great many eMails regarding “could you comment on the imposing ”˜financial cliff’ event and how that impacts the debt ceiling”. Based on that, here is an attempt to explain where we are and where we may be heading in basic terms:

 

Incoming economic reports during the past month point to a pickup of economic growth in the third quarter from the second quarter. However, the improvement is due largely to a downward revision in growth in the second quarter. Most economists see no meaningful improvement in growth in the second half of this year from the subdued pace experienced during the first half, with projected growth remaining below 2 percent. Despite an additional easing by the Federal Reserve, risks remain tilted to the downside. The European debt crisis and looming fiscal cliff and debt ceiling debate continue to present the strongest headwinds to the near-term outlook. With the start of 2013 in sight, there remains extraordinary uncertainty regarding the extent of fiscal contraction, which, if it occurs as mandated under current law, would likely end the economic expansion.

 

While most analysts assume a delay or an extension in most of the looming tax and spending changes, no consensus exists regarding how Congress will accomplish such tasks, especially before the election. Following the balloting, current members of Congress, even those who have lost their elections, should return to work by mid-November and serve out their terms until the end of the year. The new Congress will start on January 3, and the next presidential term will begin on January 20. The transitional period before the old and the new Congress, known as the “lame duck session,” makes it extremely challenging for lawmakers to resolve the fiscal cliff issues by year end. Most believe that a short-term extension is the most likely scenario, but a temporary lapse with retroactive extension next year also is possible. The latter could lead to turmoil in the financial markets and a substantial erosion of business and consumer confidence.

 

So the takeaway is that it may not depend as much from a “financial cliff/tax extension” perspective on who is elected President in 11 days, but, rather, what the shape and the majority is in the House and the Senate when we wake up on November 7th. 

Running Through Various Sector Tidbits by Tim McLaughlin

Veros Solutions is beginning to predict price appreciation across the United States.

The VeroForecast for the 12-month period ending Sept. 1 has the research firm predicting 1.1% home price appreciation nationwide. The forecast covers 918 counties, 305 metro areas and approximately 12,985 ZIP codes.

Specific to areas in our footprint, Veros ranked the “Washington-Arlington-Alexandria, D.C.-VA-MD-WV” area at number 3 in the nation out of the 305 metro areas with a projected appreciation of 2.9%.

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According to a Fannie Mae study, the average rental price change expectation for October decreased slightly to 3.1%, the lowest level since March 2011 -> a further sign to support to improvement in the housing sector (lower rental prices due to less renters doe to more home purchases).

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In a sign of positive news to the economy, the percentage of respondents who expect their personal financial situation to get better edged up to 44%, while those expecting their personal financial situation to get worse fell slightly to 12%, according to the same Fannie Mae survey above.

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28% more current homeowners stated that they have looked into refinancing their current property given historically low interest rates, the desire to reduce the term of their original loan, and on news that the government has released new refinancing programs (HARP) that may make them eligible to qualify for a refinance whereas they did not qualify in the past.

37% of the respondents stated that they have “never” researched if a refinance makes sense for them: “too much work”, “too complicated”, and “I won’t qualify” being the top reasons why. If you are in the 37% bucket, talk to a Weichert Financial Gold Services Manager today to see why that may not be true. We can help! Ask us how!

A Leading Indicator for Housing by Tim McLaughlin

 

One general knock on employment data in the marketplace is that it is a lagging economic indicator. However, that is not the case for the housing market.

Over the past few years, fears about job safety along with severe levels of unemployment weighed down the already reeling housing market. Now, continued jobs growth appears to be putting more wind behind the growing housing recovery.

Bolstering the turn in sentiment toward housing is the renewed fall in mortgage rates thanks to the latest bond buying program unleashed by the Federal Reserve (QE III), driving interest rates down to historically low levels.

Underscoring the improved outlook, Fannie Mae’s September national housing survey out Tuesday showed an 11th consecutive monthly expectation for home price appreciation. At the same time, the percentage of respondents who expect home prices to increase over the coming year rose to 37%, the highest level since June 2010.

Meanwhile, the percentage of respondents saying it is a good time to sell a house rose an additional 9% from the level it was just one year ago. Increased confidence among potential sellers is a good sign because many have held off on listing homes in recent years due to what in many cases were seen as fire sale prices. That adds further anecdotal evidence that the flood of foreclosures hitting the market may be continuing to dissipate.

Although debate continues over the surprise fall in the unemployment rate, it dropped to 7.8% in September from 8.1% the prior month, the housing markets are more concerned about the trend. And for now, that trend is going in the right direction.

To support this consensus, the Federal Reserve, via its Beige Book business survey, said Wednesday that the U.S. economy was expanding “modestly” last month, supported by improvements in housing.

With historically low interest rates and ample housing supply, there is no time like the present to purchase that home of your dreams (or refinance the one you already own). Let your trusted Weichert Realtor and your knowledgeable Weichert Financial Gold Services Manager help you find a home and assist in structuring affordable financing terms to make your dream a reality today.