Sunday, October 19, 2008

The Economic Week in Review

Wild swings and ill winds
It was another white-knuckle week for investors, with the leading stock indexes soaring, plummeting, and soaring again in rapid succession. There were few real surprises in the week's major economic reports, however, with most indicators simply confirming what Americans already know: The economy is weak and seems to be getting weaker. For the week, the S&P 500 Index rose 4.6% to 940.6 (for a year-to-date total return of –35.2%). The yield of the 10-year U.S. Treasury note rose 8 basis points to 3.94% (for a year-to-date decrease of 14 basis points).

A bleak assessment from the Fed
In its latest "beige book" anecdotal survey of economic conditions across the country, the Federal Reserve offered a grim survey of the impact of the credit crisis. For the six-week period ending in early October, the Fed found contraction almost everywhere it looked. All 12 Fed districts reported broad-based slowdowns in business activity and consumer spending. Manufacturing took a turn for the worse, capital expenditures declined, tourism dropped, interbank lending fell off, and the real estate market extended its long slump.

Some good news on the inflation front
With crude oil prices continuing to fall, the outlook for inflation brightened in September. Producer prices for finished goods declined 0.4%—their second monthly retreat in a row. Prices dipped at all intermediate stages of production as well. With volatile energy and food prices factored out, "core" prices for finished goods were up by 0.4% for the month and 5.4% (annualized) for the quarter. On the consumer side of the equation, prices were flat in September, held down in part by a 1.9% decline in energy costs. (Still, gas prices remained up 31.7% from where they stood in September 2007.) With energy and food excluded, "core" consumer inflation was up 0.1% for the month and 2.7% (annualized) for the quarter.
"The good news is that these inflation numbers will be a positive force in sustaining consumers' purchasing power," said Vanguard economist Roger Aliaga-Diaz, Ph.D. "The bad news is that behind these numbers there are softening global demand for commodities and prospects of slower economic activity."

Retail sales weaker than expected
Even with the inflation threat easing, consumers weren't in much of a mood to spend in September. Total retail sales were down 1.2%, double the expected decrease, and August's decline was revised downward to –0.4%. Sales of big-ticket items such as autos, furniture, and appliances dropped significantly, as did sales of clothing and accessories.
Business inventories up slightly
Business inventories grew by a smaller-than-expected 0.3% in August, held in check by declines in retail inventories, particularly at car dealerships. The total inventory-to-sales ratio (a gauge of how many months it would take to empty out existing inventories at current sales levels) stood at 1.27 in August—a slight increase over July, and another indication of sluggish retail activity.

A big drop in industrial production
Industrial production contracted more than expected in September, falling 2.8%. Recent hurricanes and a strike at Boeing were partly to blame, but analysts noted that U.S. industrial activity as a whole has been anemic for many months. The mining sector took the biggest hit in September, dropping 7.8%. For the third quarter, total industrial production was down a staggering 14.5% on an annualized basis.

Another poor month for housing
There was more bad news for the beleaguered housing market in September. New residential construction starts were down 6.3% from August, hitting a 17-year low. Although multifamily housing units advanced 7.5% for the month, that increase was offset by a 12.0% drop in single-family homes. Overall, housing starts declined 31.1% from September 2007. Permits for new construction, a key measure of future demand, were down 8.3% in August and 38.4% over the past year. "This sharp drop in housing starts, paired with the increasing inventory of unsold homes, tells me we should be prepared for significant price declines in the months ahead," Mr. Aliaga-Diaz said.

The economic week ahead
The Conference Board's index of leading economic indicators is likely to grab the most attention in what will be an otherwise light week for economic reports. Also on tap are September's figures for existing-home sales.

Thursday, October 9, 2008

Volunteering at Homes for Heroes

OCAR, my real estate association, is one of the sponsors of Habitat for Humanity's local Homes for Heroes build in San Juan Capistrano.

This week I had the opportunity to volunteer my time and energy at the project site. Being involved in building one of these homes was a fantastic experience. For a full day I worked as a plumber, cutting and threading pipe. It was hard, hot work which really made me appreciate my air conditioned office and comfortable chair. However, I wouldn't have given up that day of work for anything.

There were about 50 or so other volunteers working on various aspects of the project. They all were making a difference for families that really need our help. In our case we were building homes for wounded veterans.

If you have a chance to work on a Habitat Humanity, take it. It feels so good to make a difference.

Wednesday, September 10, 2008

Back to Prudential

I'm proud to announce that this week I changed my brokerage affiliation back to Prudential California Realty in Laguna Niguel. I'm excited to be back where it feels like home. My phone number, email and web address remain the same. My new address is:

Prudential California Realty
29982 Ivy Glenn Drive, Suite 100
Laguna Niguel, CA 92677
If you get a chance, stop by or call and say hello. I look forward to speaking witih you.

Monday, March 17, 2008

Short Sales

A real estate short sale is when the amount due in loans on a property exceeds the amount the property could be sold for.
Know your property value
Your REALTOR® will provide you with an estimate of your home's value in today's market. If you are selling the home yourself you will have to prepare your own market analysis for your property and the surrounding area.

Calculate your Closing Costs
Your REALTOR® will provide you with an estimate of your closing costs. If you are selling your home yourself have your Title company or Real Estate Attorney what your closing cost will be.

Determine how much you owe on your home
Total all of the loans on your property.

Calculation Time
Subtract the total amount you owe on your home from the estimated proceeds for your sale. The higher the positive number the better off you are. However, if this calculation yields a negative number then you have a Short Sale and move on to the next step.

Contact Your Lender(s)
Explain your situation to your bank's customer service department. This will not be their first call of this type. You will most likely be directed to to a specific department that the bank has set up to deal with short sales. Try to talk to a supervisor or manager; they will have more authority, training and experience.

What are Your Lenders Procedures?
This is where you will find a great amount of variance between lenders. Some lenders are willing to work with you to resolve the issue. They may offer to recast the loan with lower payments over a longer time period. They may offer loan forbearance for some time period, adding the missed payments and interest on to the back of the loan. The lender may settle for a reduced amount owed on the loan and allow you to sell the home for less than is owed. Other lenders may tell you the debt is your responsibility, period.

Sell the Home
Keep in mind however, that on certain types of loans the lender may require to make up the difference either by a personal note or thru collection.

Saturday, February 16, 2008

Economic Week in Review - February 15, 2008

Trade deficit shrinks, retail sales up
Economic news has been gloomy lately, but this week there were some encouraging signs. Reports showed better-than-expected retail sales and a reduced U.S. trade deficit. Still, in Senate testimony, the Federal Reserve chairman described the economy as "sluggish," and he also left the door open to additional cuts in the federal funds rate. On Wednesday, President George W. Bush signed into law a $168 billion package aimed at stimulating the economy through tax rebates. For the week, the S&P 500 Index rose 1.4% to 1,350 (for a year-to-date total return of –7.8%). The yield of the 10-year U.S. Treasury note rose 12 basis points to 3.76%.

U.S. trade deficit improves
The U.S. trade deficit narrowed 7.0%, to $58.8 billion, in December (from $63.1 billion in November). Analysts had expected a trade deficit of $61.6 billion. Exports rose by $2.2 billion, while imports declined by the same amount. The weakness of the dollar relative to other currencies was credited with helping to cut the trade deficit. For the year, the trade deficit declined by $46.9 billion, or 6.0%.

Retail sales rebound
Retail sales climbed 0.3% in January, recovering from a 0.4% drop in December. Analysts had expected a 0.3% decline. Gas stations had the strongest growth, with sales up 2.0%. Sales of automobiles and parts were up 0.6%. Excluding gasoline and autos, however, sales were unchanged.

Stimulus package enacted, rebates to come
President Bush signed an economic stimulus package that provides tax rebates to millions of households. Many single filers will receive $600, while many married couples will get $1,200. The rebate amounts, however, begin to phase out for individuals with incomes over $75,000 and for married couples with incomes over $150,000. The IRS will start mailing rebate checks in May.

Fed chairman: Further rate cuts possible
In testimony to the Senate Banking Committee on Thursday, Federal Reserve Chairman Ben S. Bernanke said, "Downside risks to growth remain, including the possibilities that the housing market or labor market may deteriorate to an extent beyond that currently anticipated." The Fed is open to further reductions in the federal funds rate "as needed to support growth," he said. Mr. Bernanke also said he expects "a somewhat stronger pace of growth starting later this year" as the effects of the stimulus package and Fed rate cuts take hold. Since September, the Fed has reduced the federal funds rate, which greatly influences the cost of borrowing for consumers and businesses, by 2.25 percentage points.

Business inventories head higher
December's business inventories grew 0.6%, boosted by increases in the manufacturing and wholesale sectors. Retail inventories nudged down 0.1%, fueled by a 1.6% slide in auto inventories. Excluding autos, retail inventories were up 0.7%.

Industrial production ekes out a gain
Industrial production in January inched up 0.1%. Manufacturing sector output was unchanged, while utility output climbed 2.2%. Capacity utilization in the industrial sector was 81.5% compared with the historical average of 81.0%.

The economic week ahead
Next week's reports will include a reading on the outlook for the economy with the release Thursday of The Conference Board's index of leading economic indicators. Also due are the latest reading on the Consumer Price Index (Wednesday), a report on new residential construction (Wednesday), and the minutes from the January meeting of the Federal Open Markets Committee (Wednesday).

Saturday, January 12, 2008

Economic Week in Review - January 11, 2008

Trade deficit widens, Fed open to more rate cuts
The U.S. trade deficit widened in November, hitting its highest level in more than a year amid then-record oil prices. In other economic news, the chairman of the Federal Reserve said the Fed is prepared to make additional interest rate cuts to stimulate growth. For the week, the S&P 500 Index fell 0.8% to 1,401. The yield of the 10-year U.S. Treasury note fell 6 basis points to 3.82%.

U.S. trade deficit hit 14-month high
The U.S. trade deficit—the gap between the total value of imports and exports—grew 9% to $63.1 billion in November from $57.8 billion in October. It was the biggest trade gap recorded since September 2006, according to Commerce Department data. Analysts attributed the wider deficit, in part, to higher import prices for oil. Overall, imports rose by $6 billion, while exports were up $600 million. Compared with a year ago, the trade deficit is up $4.7 billion, or 8%.

Chairman Bernanke: Fed ready to make 'substantive' rate cuts
Citing concerns about a weakening economy, Federal Reserve Chairman Ben S. Bernanke said in a speech Thursday that he's open to further reductions in the federal funds rate, which greatly influences the cost of borrowing for businesses and consumers. Mr. Bernanke said the outlook for 2008 "has worsened and the downside risks to growth have become more pronounced." The Fed chairman said he is especially concerned about what appears to be a further decline in the demand for housing caused in part by continuing troubles in the mortgage markets. "We stand ready to take substantive additional action as needed to support growth and provide adequate insurance against downside risks," he said. The Fed cut rates on three occasions last year for a cumulative reduction of one percentage point in the federal funds rate. Fed policy makers next meet January 29 and 30 to vote on interest rates.

Consumer borrowing rose sharply, exceeding expectations
U.S. consumers ramped up their borrowing in November as consumer credit outstanding rose by $15.5 billion from October's number to $2.5 trillion. The increase—7.4% on an annualized basis—was nearly twice the $8 billion that had been forecast. Revolving debt, primarily credit card borrowing, jumped at an 11.3% annualized rate. Analysts said the housing slump has increasingly forced consumers to rely on credit cards because it's now more difficult to get home equity loans. Nonrevolving credit, primarily auto loans, climbed at a 5.1% annual rate, after declining 3.5% in October.

The economic week ahead
A busy week for economic news will include the latest readings on two closely watched inflation gauges—the Producer Price Index (Tuesday) and the Consumer Price Index (Wednesday). The release on Friday of The Conference Board's index of leading economic indicators will provide a reading on the outlook for the U.S. economy. Also due are reports on retail sales (Tuesday), business inventories (Tuesday), industrial production (Wednesday), and new residential construction (Thursday). Analysts will also await the Wednesday release of the Fed's Beige Book.

Tuesday, January 8, 2008

Welcome to 2008

The best thing that can be said about 2007 is that it is over. What lies ahead for the Real Estate Community in 2008?

We are one week into the new year and I am extremely optimistic. This weekend I held an Open House at a Fantastic Home (3 Sierra Vista, Laguna Niguel). The weather was terrible but the Open House was very well attended. The people visiting were optimistc about the market and planned to buy home in 2008.