Market Monitor by Tim McLaughlin

The Positive Momentum Continues into Spring by Tim McLaughlin

The index of pending home sales, which reflects deals that have signed contracts but haven’t yet closed, was released this week and rose to 97 from 89.8 a year ago, according to the National Association of Realtors. This index that tracks contracts to buy previously owned homes rose 2% in January from December to the highest level since April 2010, rekindling hopes that improving demand will continue to move the housing market in the right direction.

The reading was the highest for any January since 2007, and is further fueled by mortgage rates which are nearly one percentage point below their levels of a year ago, trending near historical lows.

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The number of Americans filing first time claims for jobless benefits fell to a level matching a four-year low from March of 2008, more evidence the labor market is healing.

Applications for unemployment insurance decreased 2,000 in the week ended Feb. 25 to 351,000, Labor Department figures showed today. Economists forecast 355,000 claims, according to the median estimate in a Bloomberg News survey. The number of people on unemployment benefit rolls fell, while those getting extended payments also declined.

Work reductions are on a downward trend as employers gain confidence in the outlook for economic growth. A smaller number of job reductions also puts those companies in place to hire additional employees as demand picks up.

In an equally encouraging sign, only seven states and territories reported an increase in claims, while 44 had a decrease.

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Positive statements heard this week:

“The attendance at my Open House last weekend was the busiest in years, with multiple visitors having serious interest. I even picked up a neighbor who stopped by who wants me to list their house as well”

“I had three offers on the first weekend, and it is becoming a bit of a bidding scenario”

Positive, Positive, Positive

Tim McLaughlin

A host of positive news tidbits for the economy and the housing sector this week:

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Builders broke ground on more homes than forecast in January, helped by warmer weather and adding to signs the U.S. residential real estate market is stabilizing.

Starts rose 1.5% to a 699,000 annual rate from December’s 689,000 pace that was stronger than previously reported, Commerce Department figures showed Thursday in Washington. The median estimate in a Bloomberg News survey called for a rise to 675,000.

“The numbers are genuinely getting better,” said Brian Jones, senior U.S. economist at Societe Generale in New York, who projected a rate of 700,000 starts.

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Claims for jobless benefits unexpectedly dropped last week to the lowest level in 4 years, showing the job market is on the mend.

Applications for unemployment insurance payments decreased 13,000 in the week ended Feb. 11 to 348,000, less than the lowest forecast of economists surveyed by Bloomberg News and the fewest since March 2008, Labor Department figures showed Thursday. The median survey estimate projected an increase to 365,000.

The slowdown in dismissals coincides with a pickup in hiring and a drop in unemployment that’s helping repair a labor market still recovering from the 18 month recession that ended in June 2009.

It’s good news for consumers, meaning stronger income growth and likely rising confidence that will support spending and housing.

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The share of homeowners behind on their mortgages fell to the lowest level in three years during 4Q11, offering the latest sign of how recent job market gains has helped heal the battered housing market, according to a report released Thursday.

The survey, released by the Mortgage Bankers Association, showed that 7.6% of residential mortgages were at least 30 days past due on their payments at the end of 2011. That was down from 8.3% one year earlier and from a peak of 10% in early 2010.

The better mortgage performance reflects a growing economy, but “mortgage performance is also improving faster than the overall economy,” said Jay Brinkmann, the MBA’s chief economist.

Employment Gaining More and More Momentum by Tim McLaughlin

A banner employment report this morning as employment data climbed more than forecast in January and the U.S. jobless rate unexpectedly fell to the lowest level in three years, casting some doubt on whether the Federal Reserve can wait until 2014 before raising interest rates.

The 243,000 increase in payrolls was the largest increase since April and exceeded all forecasts in a Bloomberg News survey, Labor Department figures showed in Washington. The unemployment rate dropped to 8.3%, the lowest level since February 2009.

The jump in hiring shows companies are gaining confidence that the economic expansion will weather the European slump and may boost President Barack Obama’s re-election bid. The data comes one week after Fed policy makers said the economy wasn’t growing fast enough to push down the jobless rate, prompting them to extend a pledge to keep interest rates low for another two years. Based on the data this morning, there are conversations on trading desks that the Fed may not be able to stay on hold regarding interest rates as long as they think.

The Fed said on January 25th after a two day meeting that it would keep its benchmark lending rate low “at least” until late 2014 from a prior target of mid 2013. “We still have a long way to go before the labor market can be said to be operating normally,” Fed Chairman Ben S. Bernanke told the House Budget Committee in Washington yesterday. “Fortunately, over the past few months, indicators of spending, production and job market activity have shown some signs of improvement.”

The median projection in the Bloomberg survey called for a rise of 140,000 payrolls after an initially reported 200,000 gain in December. Estimates of the 89 economists ranged from increases of 95,000 to 225,000. Revisions also added a total of 60,000 additional jobs to payrolls in November and December. The Labor Department revised December’s gain to 203,000.

Takeaway:

Fantastic news for the economy and for consumer confidence, particularly home seekers on the fence. A slight retracement in rates given this morning’s news, but rates still at historical lows with 30 year terms in the mid to high 3’s and 10-15 years in the high 2’s/low 3’s.

The FOMC Keeps the Momentum Going by Tim McLaughlin

Now that the dust has settled on the Fed’s directive announced last Wednesday in their statement, we want to reiterate several themes. Without a doubt, this is an uber-dovish statement from the Fed.

First, the extended period language was moved out significantly with the first rate hike targeted for late 2014 or later. Granted, this could be pulled back closer over time, but this is the projection as of today.

Second, Bernanke made it clear that the guidance sentence, which is decided by the FOMC voters, dominates the projections, which comes from the whole committee. In other words, the alternate projections, which reference potential hikes in 2012 and/or 2013, should be discounted, as they are dominated by non-voting hawks.

Third, the FOMC has quietly raised its inflation target. Just five years ago the discussion was about a 1 to 2% range, and then it moved to 1 1/2 to 2%, then 1.7 to 2% and now simply 2%. Clearly the Fed is worried about running a low target because it means that during recessions there is a greater risk of either going into deflation or hitting the zero lower bound on interest rates. Hence, create a bigger cushion gives more room for fluctuation.

Fourth, the Fed has implicitly changed the weights in its “Taylor Rule”. By law the Fed is supposed to put equal weight on unemployment and inflation, but since Volcker came in the implicit sense was that inflation had a bit more weight. This does not mean the Fed has given up on controlling inflation, but, rather, it does mean on the margin they accept bigger cyclical swings in inflation.

Takeaways – All of this suggests:

(1) The first rate hike will come even later

(2) Even stronger odds of QE3 (focused on MBS given Fed’s focus on housing) after the “Twist” is over and if growth weakens as most expect

(3) Somewhat higher inflation and inflation expectations

(4) More inflation volatility

(5) Accommodations to support the broader economy, lending (and housing as a bi-product) and investment (corporate and otherwise).

All in all, more positive news to support the market in 2012.

Positive Signs Abound by Tim McLaughlin

Mortgage applications increased 23.1% from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending Jan. 13. The data includes an adjustment for New Year’s Day. The MBA market composite index increased 23.1% on a seasonally adjusted basis from one week earlier. On an unadjusted basis, the index increased 38.1% compared with the previous week.

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Fewer Americans than forecast filed first time applications for unemployment benefits last week, easing concern that post-holiday firings were on the rise.

Claims plunged by 50,000 to 352,000 in the week ended Jan.14, the lowest level since April 2008, Labor Department figures showed today in Washington. The median forecast of 41 economists in a Bloomberg News survey projected 384,000. The four-week average, which smoothes out fluctuations, decreased to 379,000 last week from 382,500.

Companies are slowing the pace of firings and beginning to step up the pace of hiring even as a slump in Europe spurred by a default crisis may limit U.S. growth. The improvement may be a sign that companies are looking to expand their workforces as sales climb.

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Oil demand is falling for the first time since the 2008-2009 global financial crisis as a result of a mild winter, high crude prices and the European economic crisis, according to fresh estimates from the International Energy Agency. The industrialized nations’ watchdog said oil demand dropped by 300,000 barrels a day in the final quarter of 2011. Such a fall is rare: over the last decade, oil demand has posted drops only in the financial crisis of mid-2008 to mid-2009. The end game on the supply/demand curve is as demand falls, so, too, should prices.

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The spring market is around the corner…we can help!

Candidate Platforms on the Economy & Housing by Tim McLaughlin

With the Republican Primaries well underway, we analyze some of the candidate’s platforms on two of the topics that will drive our industry over the course of the next four years: the economy and housing.

The Economy:

Romney:  A proponent of lower taxes, less regulation, and a balanced budget. Proposes the repeal of Dodd-Frank, a law toughening financial industry regulations after the meltdown in that sector. Proposes changing, but not repealing, Sarbanes-Oxley, a law tightening accounting regulations in response to corporate scandals, to ease the accountability burden on smaller businesses.

Santorum:  Spur jobs by eliminating corporate taxes for manufacturers, drill for more oil and gas, and slash regulations. Repeal every Obama-era regulation that costs business more than $100 million a year.

Huntsman:  End corporate subsidies, cut regulations, lower taxes, spur jobs through energy development; seek repeal of President Barack Obama’s health care law. Break up megabanks as a hedge against future bailouts of the industry.

Gingrich:  Repeal the 2010 financial industry and consumer protection regulations that followed the Wall Street meltdown, and repeal the 2002 regulations enacted in response to the Enron and other corporate and accounting scandals. Restrict the Fed’s power to set interest rates artificially low.

Perry:  Spur economy by repealing rafts of regulations, Obama’s health care law and Dodd-Frank toughening financial-industry regulations after the meltdown in that sector. Create jobs in energy sector by removing obstacles to drilling and production. Cut corporate taxes.

Paul: Return to the gold standard, eliminate the Federal Reserve, let gold and silver be used as legal tender, eliminate most federal regulations.

Housing: Sadly, the silence has been deafening regarding the candidates stance on housing and their plan to revive the sector. A couple of quotes are as follows:

Romney:  “Don’t try to stop the foreclosure process. Let it run its course and hit the bottom. Allow investors to buy homes, put renters in them, fix the homes up and let it turn around and come back up.”

Perry:  “Immediate remedy for housing is to get America working again. Creating jobs will address the housing concerns that are impacting communities throughout America.”