Burbank Real Estate Blog

Exisiting Home Sales dropped 2% in March. The bad news was that housing supplies increased to 9.9 months, up .3 from the February number of 9.6. Median prices were up 2.5% to $200,700, but is down 7.7% as compared to the median price in March 2007. State Street Investor Confidence Index dropped to 72.8 from 77.2. Bank of Canada Announcement The bank cut it’s key interest rate 50 basis points, as expected, to 3%. Our Fed Funds rate is at 2.25%.(Tuesday)

• Jobless Claims, came in at 342,000, dropping an unexpected 33,000. No one seemed too thrilled as one week’s data is hardly a trend, but let’s see what next week’s numbers bring. Durable Goods Orders continued to decline in March, mainly in the transportation sector, ie motor vehicles. New Homes Sales fell 8.5%, worst showing since 1991. But even worse was the year over year decline of 36.6%, worst since 1981. The downward trend continues reflecting the rough environment for builders. Help Wanted Index 19 versus last reading of 21. This number indicates less help wanted advertisements which of course translate into fewer available jobs. (Thursday)
• Consumer Sentiment at 62.6 this reading is at it’s lowest point since the 1980’s. Not surprising given the increased cost of gasoline, groceries etc.(Friday)

• Bonds…2 year 2.41%, 5 yr. 3.18% and the 10 yr. 3.87%, quite a bit higher than last week, again.
• Crude oil finished at $118.52 per barrel.

Of note this week:

The unexpected dip in Consumer Confidence and the continued increase in oil prices continue to plague consumers and the markets.

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• Retail Sales came in +.2%, better than the unchanged number they were expecting. Given that most of this increase came from sales at gas stations, I’m not really sure how you can put a positive spin on it. Business Inventories came in as expected at .6%. Many were hoping to see these shrink as it would indicate consumers are doing more buying.(Monday)

• Producer Price Index the markets were excited without food and energy it only rose .2%, with food and energy it rose by a stellar 1.1%, but really folks, I think it’s time we start looking at the entire picture. Housing Market Index was unchanged at 20, which would point to some stabilization in the housing market.(Tuesday)

• Consumer Price Index came in as expected. Housing Starts both starts and permits weakened, starts, down 11.9% for the month and down 36.5% year over year, posted one of their weakest readings since the 1991 recession. Building Permits, fell 5.8%. Industrial Productionwas slightly higher than expected.(Wednesday)

• Jobless Claims, came in at 372,000, a bleak reading for the overall economy as job strength will be a key component to a recovery. Leading Indicators came in at .1% giving rise to the notion that the economy is just flat and not in a recession. Given the overall picture I’m not sure I would agree with this assessment. I think it’s a very subjective picture depending on where you live or how you have been personally impacted by $4 per gallon gas, job losses, foreclosures etc. (Thursday)

• Bonds…2 year 2.13%, 5 yr. 2.89% and the 10 yr. 3.70%, quite a bit higher than last week.
• Crude oil finished at $116.75 per barrel.

Wow, great gains for stocks this week following a spate of dismal earnings reports from financial institutions. Citigroup announced a $5.1 billion dollar loss and is cutting 9,000 more jobs, but because this was not as bad as some analysts were predicting, the market rallied.

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There’s plenty of bad news out there and I think it’s important to sift through the slate of negativity in order to understand what’s really going on. If you are looking to buy or sell a home, is this the right time?

First let’s look at some of the recent facts:

• A report by Equifax and Moody’s Economy.com.shows that 4.46 percent of mortgages were at least 30 days past due at the end of the first quarter, up from 3.98 percent in the fourth quarter and up 2.9 percent from a year earlier.
  
  

• The national foreclosure rate rose to 1.39 percent, from 1.08 percent at the end of 2007 and 0.58 percent a year earlier.
  

• Increases in mortgage delinquencies and foreclosures, again nationally, were the largest since 2000, when the firms began collecting this type of data. Major contributors are rising unemployment, 80,000 jobs lost last month, according to the Labor Dept., and falling home prices.
  
  

• Pending home sales in February fell 1.9% nationally, although here in California they rose 2.1%, once again bringing home the point that real estate is quite area specific.
  
  

What makes this time around so interesting and much more challenging is that the Fed has shaved 3% points off bank borrowing costs, but the average fixed rate has only dropped by ½ % to 5.85%. Back in 2000, last time home sales fell year over year, interest rate cuts saved the day. In 2001 the Fed cut rates 11 times by 4.75% and average fixed rates fell to a record low of 5.21%. My guess is that the average 30 year fixed rate will have to fall more before it starts to make an impact.

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• Consumer Credit-slowed substantially in February, $5.1B v.$10.3 in January.

• Pending Homes Index-outlook for the housing sector worsened as existing home sales fell 1.9% in February. Given the slowdown in the job market I would say this number will continue to look grim in areas where job losses are the heaviest.
• FOMC Meeting Minutes- Most downbeat in a while as the Fed said that fighting a recession is it’s number 1 priority but fighting inflation is just as important. Economic growth forecasts were lowered, but the Fed sees a recovery in the second half of 2008. I’m not holding my breath on this forecast as they have been trailing what’s really happening by a good margin!

• International Trade -This figure worsened which is indicating that the first quarter was weaker than the forecasts. The area this points to is a weakening in the manufacturing sector.
• Chain Store Sales-another dismal month for the retailers, not surprising considering the challenges families are facing.
• Jobless Claims -Claims were less than expected which was good for stocks.

• Import/Export Prices-Surged 2.8%, not surprising considering the weakness in the dollar. What this basically says is that we’re paying more for foreign goods.
• Consumer Sentiment-Consumer sentiment tanked as inflation continues to plague the average consumer.

• Bonds…2 year 1.74%, 5 yr. 2.50% and the 10 yr. 3.50%.
• Crude oil finished at $110.14 per barrel.

Wow, the GE announcement certainly shattered what would have otherwise been considered a calm week of sideways trading. Ge is considered a bellwhether stock and a shortfall announcement will be seen as a possible precursor to future bad news from other financial companies. The Dow finished the day down 257 points(2%) to close at 12325. The S&P 500 index also declined 2% to 1333 and the Nasdaq fell 2.6% to 2290. GE announced that 1Q earnings fell 8%, to 44 cents per share missing the consensus of 51 cents per share. This is significant in that their revenues increased by 8% in the same period. Most of the havoc was caused by the financial business although they also noted that their industrial and healthcare divisions took a hit.

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The Economic Week in Review:

• NAPM Chicago Index showed a slight jump in orders, which was positive, but also showed a jump in prices, probably due to rising fuel prices.
• Motor Vehicle Sales were weak, lowest rate since 1996, Construction Spending was down but better than expected and ,ISM Manufacturing Index continued to slip and new orders are down.
• Challenger Job Cut Report, reported heavy job cuts in the government, financial and transportation sectors.  Factory Orders fell more than expected .
• Monster Employment Index, rose slightly and Jobless Claims, posted worst numbers since Hurricane Katrina in 2005.
• Employment Situation(non-farm payrolls), much worse than expected as 80,000 jobs went away versus the expected 50,000..
• Bonds…2 year 1.82%, 5 yr. 2.62% and the 10 yr. 3.47%.

Between recession talk from Federal Reserve Chairman Ben Bernanke and the worst jobs report since 2003 it’s not looking pretty.  At this point I’m not trying to be pessimistic at all, but you have to admit that the overwhelming evidence supports the fact that we are and have been in a recession for at least a few months.

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