Snoqualmie Pass Undressed

Snoqualmie Pass Real Estate, Mortgage, and Economy 3/8/2010

Here is the Snoqualmie Pass Real Estate report for March 8, 2010.

IN LIKE A LION… March came in and the markets roared, as the Dow clawed its way up to a 2.3% gain for the week that brought it to its highest level for the year. Investors were basically pleased with a slew of encouraging economic data that came in ahead of expectations, while credit market conditions continue to improve. For the week, the Dow headed UP 2.3% to 10566.20; the S&P 500 hiked UP 3.1%%, to 1138.69; while the Nasdaq soared UP 3.9%, to 2326.35.

Last week’s housing report gave us the National Association of Realtors Pending Home Sales index, down 7.6% for January. But year over year, the NAR index is up 12.3%. Also, it’s now at 90.4 and a score of 100 equals the average level of contract activity for 2001, the base year, when activity was at a record high. So pending sales are still in pretty good territory.

Meanwhile, a quarterly report from a builders group and a major bank revealed that home prices are at near record levels of affordability. In the last three months of 2009, a family making the median income of $64,000 a year could afford to buy 70.8% of all homes sold during that time! According to this report, a home is affordable if a family making the metro area’s median income would have to spend no more than 28% of their take-home pay for housing. Of course, there are variations in affordability around the US, but this is a great overall trend.

Buyers, however, shouldn’t expect great affordability to last forever. According to a Freddie Mac index, in the last quarter of 2009 four out of nine regions showed home price gains! And the NAR’s monthly market forecast, out last Thursday, projected the median price of existing homes UP 2.8% for 2010 with the new home median price UP 2.0%. In addition, no one knows what will happen to mortgage rates once the Fed stops buying mortgage bonds at the end of this month. Smart buyers shouldn’t drag their feet, especially those wanting the tax credit, which requires a signed contract by April 30.

That’s not to say there weren’t a few disappointments, starting with the dip in pending home sales covered above. ISM Manufacturing for February also came in below estimates, at 56.5, but, hey, that’s still comfortably above the 50 level that signals expansion. On the other hand, ISM Services bested expectations, reporting a 53.0, its best reading since 2007.

Friday we had an employment report some experts feel shows an economy that’s poised to start adding jobs. Nonfarm payrolls were still down by 36,000 in February, but this was way better than expected. Even better than that, the unemployment rate held at 9.7%, avoiding an expected increase. And some observers feel the underlying data is pointing to job creation. We’ll see. 

Snoqualmie Pass Real Estate, Mortgage, and Economy 3/1/2010

Here is your update for Snoqualmie Pass Real Estate, Mortgage, and Economy, for the week of 3/1/2010.

INFO THAT HITS US WHERE WE LIVE  New home sales fell 11.2% in January to a record low level. Existing home sales weren’t very pretty either, down 7.2%, though they’re UP 11.5% over a year ago. Let’s remember that last Fall we all thought the tax credit was going away at the end of November. Many sales got pushed into October and November, causing sales drops the next two months. But the median new home price is down just 2.4% year over year and the average price is now UP 3.7%. For an existing home, the median price is unchanged from a year ago and the average price is UP 2.6%. More evidence home prices are stabilizing, with some analysts expecting modest gains for the year. Supporting this, the Case-Shiller home price index was UP 0.3% in December, its seventh straight monthly rise. 

Even more interesting was the news that this has actually been a very good decade for home prices. From January 2000 to December 2009, prices were UP 46%, making residential real estate a clearly profitable investment. And that’s not even factoring in the mortgage interest and real estate tax deductions homeowners get!

Finally, we’ve reported that the Fed will stop buying mortgage bonds at the end of this month and experts feared rates may edge up. Now analysts say mortgage rates might not move much at all. This stems from the fairly calm market reaction to last week’s hike of the Fed’s discount lending rate (which is NOT the key Fed funds rate). Seeing little or no move in today’s low mortgage rates is good news for the near term.

MINOR SLIP… Another volatile week on Wall Street, as investors drove stock prices down two days, then up two days, with all three major indexes slipping just slightly for the week. Things got off to a weak economic start with Consumer Confidence dropping sharply in February, much like the temporary drop in January 1996 when, curiously, there was another big blizzard on the East Coast.  For the week, the Dow was down 0.7%, to 10325.26; the S&P 500 was down 0.4%, to 1104.49; while the Nasdaq skidded down 0.3%, to 2238.26.

Folks didn’t much like the drop in new home sales either, but good news did come with the Richmond Fed Index, which showed that manufacturing in the mid-Atlantic region went from -2 in January to +2 in February. Then there was Fed Chairman Ben Bernanke’s monetary policy report to Congress, which he serves up every six months. Bernanke assured everyone rates will remain low, a message loved by investors. 

Where are Home Prices Headed? Follow the Rents!

The big question for home buyers and sellers today is: “Where are home prices headed?” People want to know if now is a good time to buy or sell, or if they should wait. We all need to stay on top of trends in real estate values — so what’s a good way to analyze the situation?

 Yale economist Robert Shiller states it bluntly: “If you look at the trend in rents to see where housing prices are headed, you’re looking at the right measure.” Shiller is the co-developer of the S&P Case/Shiller Home Price Indices that monthly track residential real estate values nationally and in 20 metro areas.

Traditionally, people have been willing to pay a modest premium to own a home rather than rent it. Recent studies report that in 1999 rents averaged 87% of the after-tax mortgage payment for houses and condos of similar size in the same neighborhood.

When home prices took off, this percentage changed. By mid-2006, rents had fallen to less than 60% of after-tax mortgage payments. In some markets, owners were paying twice as much as renters for a similar property in the same neighborhood. In a few places, owner monthly payments were three times average rents.

The 87% ratio of rent to ownership cost for 1999 is a good benchmark because it stayed around that level throughout the 1990’s and the steep rise in home prices hadn’t really begun.

With that as our guide, we can conclude that home prices at last appear to be stabilizing. By the end of October 2009, rents on average were up to 83% of ownership costs!

Conditions vary from market to market, so check your own area. But with historically low mortgage rates, plus the homebuyer tax credit, this could be a great time to be buying or selling…. Have a great month!

Snoqualmie Pass Real Estate, Mortgage, and Economy 2/22/10

The minutes from the Fed’s January FOMC meeting stated economic conditions still warrant low interest rates, although their GDP growth estimate went from 3.0% to 3.2% for the year. Then Thursday, as reported in an Inside Lending Bulletin, the Fed raised its discount rate on emergency loans to banks by 0.25%, to 0.75%. The discount rate is not the Fed funds rate and the central bank said the increase does not “…signal any change in the outlook for the economy or for monetary policy….” Some analysts feel the Fed was just trying to appease inflation “hawks”. The irony was, the CPI inflation reading came in the next morning below consensus expectations, up a scant 0.2%!

Earlier in the week, the reading on wholesale inflation came in a little higher than expected, but this was balanced by the good news on housing starts, plus better-than-expected earnings from John Deere, Merck, Kraft, Hewlett-Packard and Wal-Mart. Equally encouraging, industrial production went UP 0.9% in January, putting it up at an 8.9% annual rate for the last six months. More evidence that manufacturing is at the heart of this recovery.

UP UP UP UP… YUP, stocks went UP four days in a row, which constituted all the trading days there were in the holiday-shortened week. Investors seemed to be responding to a cessation of fears coming out of Europe, encouraging economic data, good corporate earnings and the news from the Fed.  For the week, the Dow was UP 3.0%, to 10402.35; the S&P 500 was UP 3.1%, to 1109.17; while the Nasdaq climbed UP 2.8%, to 2243.87.

Snoqualmie Pass/Seattle Real Estate

Here are some interesting Real Estate statistics for the Seattle market:

Median home price: $371,000

Value lost since 2006: 15.2%

Forecast gain by 2011*: 3.8%

Seattle has become a world-class city with a diverse, vibrant economy. As a home to manufacturers such as Boeing and software providers such as Microsoft, the job market has held up better than average, with a current unemployment rate of 8.8%.

Home prices had a softer landing as well, dropping just 15.2% over the past three years, about half the national average. However, prices do tend to be volatile, according to Mark Fleming, chief economist for First American CoreLogic. The lack of available land for development is one reason for that volatility, as are political restrictions on growth.

After another modest price decline of 2.3% in the next eight months, the market should begin to turn up. Between June 2010 and June 2011, the city should see a gain of 6.2%. Averaged out, that means a 3.8% gain over the next two years*.  

And while that may not sound all that robust for those jaded by the annual double-digit returns recorded during the boom, that performance will be one of the best of any large city during that period.

Snoqualmie Pass Real Estate, Mortgage, and Economy 2/8/2010

STILL NORTH OF 10,000… Last week, stocks took investors on a wild ride, but when all was said and done, the venerable Dow remained defiantly above 10,000. Investor concerns focused mostly on a “sovereign debt crisis” in Europe. Basically, Portugal had trouble selling its treasuries.  Then, Spain, whose 19% unemployment is way worse than any European country except Latvia, raised its deficit forecasts.  Finally, people questioned if the Greek government has the fiscal discipline necessary to pay back its loans. European markets tanked and Wall Street roller-coastered.  For the week, the Dow was off 0.5%, to 10012.23; the S&P 500 slipped 0.7%, to 1066.19; while the Nasdaq was down just 0.3%, to 2141.12.

Investors also aren’t completely sold on our own recovery.  The problem of course is jobs, the most lagging of all economic indicators.  Weekly initial jobless claims rose by 8,000, a bit worse than expected. Then Friday’s January employment report showed a loss of 20,000 jobs, when a 13,000 gain was expected. But hey, the unemployment rate fell to 9.7%!  Average hourly earnings were UP 0.2% for the month and UP 2.0% over last year. Also, total hours are up at a 1.8% annual rate in the last three months. This works out to about 200,000 jobs a month, showing there’s a growing demand for labor, which companies are meeting by increasing hours. Needless to say, they can’t keep that up indefinitely.

Now some really good news…..Personal income was UP 0.4% in December and personal consumption rose 0.2%. Over the past three months, real inflation-adjusted consumer spending is UP at a strong 3.6% annual rate.  Not surprising, given that in the last nine months, compensation per worker is UP at a 4.7% annual rate. In line with that, several retailers announced same store sales, with most beating estimates — some by substantial amounts! The ISM Manufacturing index hit 58.4, a five-year high, and ISM Services went to 50.5 in January, signaling expansion in the non-manufacturing sector too.

The Pending Home Sales Index recovered from its November slump, increasing 1.0% in December, putting it 10.9% over its level of a year ago. National Association of Realtors chief economist Lawrence Yun sees “…a broad improvement over year-ago levels. December activity was the fifth-highest monthly tally in two years.” The slump was attributed to the rush before November to grab the tax credit set to expire at the end of that month.  We now know the tax credit was extended to buyers who can sign a contract by April 30 and close on the home by June 30. It’s also been expanded, adding a $6500 credit for repeat buyers to the $8,000 credit for first timers. The NAR’s Yun estimates 2.4 million households should take advantage of the credit this year.

The National Association of Realtors also released their adjusted overall outlook for this year and next. They estimate existing home sales will grow from 5.19 million in 2009 to 5.66 million in 2010 and 5.7 million in 2011.  They see new home sales growing from 375,000 in 2009 to 446,000 in 2010 and 637,000 in 2011. They believe prices have bottomed, projecting a 3.4% hike in the median price for existing homes to $179,800 this year and then a 4.3% rise to $187,500 in 2011.  New homes should go up 3.7% this year to a $221,300 median price and then 4.7% in 2011 to $231,700.

Snoqualmie Pass Real Estate, Mortgage, and Economy 2/1/10

STILL SLIPPING… There were plenty of good things to consider last week, but investors chose to dwell on the negative tidbits instead.  This sent stocks down for the third week in a row, making January the worst month for the markets since February 2009.  The week began with Apple reporting its most profitable quarter ever. Microsoft and SanDisk also made the tech sector look good by beating earnings estimates, but Wall Street worried about the companies’ cautious outlooks.  Oh well.  We even saw Consumer Confidence UP in January for the third month in a row!  For the week, the Dow dipped 1.0%, to 10067.33; the S&P 500 slipped 1.6%, to 1073.87; while the Nasdaq was down 2.6%, to 2147.35.

Friday we got the terrific news that the U.S. economy grew in Q4 of last year at a 5.7% pace, the fastest GDP growth rate in six years.  Pessimistic observers seem scared to admit the economy is in fact improving, commenting that inventories accounted for a large part of Q4 growth.  In fact, final sales, which is GDP excluding inventories, are UP at an accelerating pace for three straight quarters!  The Chicago PMI, expected to decline, instead increased, showing growing strength in Midwest manufacturing. And the employment index came in at the highest level since 2005, reporting its first positive number since 2007.

Last week began with December Existing Home Sales dropping 16.7%.  Some observers felt this was the result of uncertainty over the homebuyer tax credit, scheduled to expire at the end of November.  The tax credit was, as we now know, extended into this year, but it wasn’t announced soon enough to help December sales.  Nonetheless, Existing Home Sales are UP 15.0% over a year ago. And the median price of an existing home is now $178,300, UP 1.5% over a year ago and the best year-over-year comp since 2006. Finally, inventories are now down to 3.29 million, their lowest reading since March 2006.  Wednesday, New Home Sales were reported at a 342,000 annual rate, down 7.6% for December. But inventories are now at 231,000, 59.6% below their mid-2006 peak and at their lowest level since 1971, when the population was two thirds its size today.

Snoqualmie Pass Real Estate, Mortgage, and Economy 1/25/10

Here is the Snoqualmie Pass Real Estate, Mortgage, and Economy information for the week of 1/25/10.

Last week featured a combination of unexpected developments — Chinese credit tightening, Presidential sword-rattling over bank regulatory reform and doubts about Fed chairman Ben Bernanke’s Senate confirmation. These surprises shook investors, sending all market indexes down for the week. But China was just raising interest rates to cool down an economy now growing at 10%. And the President’s tough talk to bankers, plus Senators cooling on Bernanke, were seen by many as political efforts to appeal to people who don’t like the Wall Street bailouts. Of course, all this happened after Republican Scott Brown took Ted Kennedy’s Massachusetts Senate seat. Talk about surprises!

The only encouraging words came from corporate pronouncements on Q4 earnings. Results were better than expected, as 47 of the 60 S&P companies reporting delivered upside results. These included biggies like Google, GE, McDonalds’s and IBM. There were also winners in the financial sector, but investor uncertainty pushed stocks down overall.  For the week, the Dow fell 4.1%, to 10172.98; the S&P 500 dropped 3.9%, to 1091.76; while the Nasdaq was off 3.6%, to 2205.29.

December housing starts were reported down 4.0% last week. This put them at a 557,000 unit annual rate, a little below expectations. We did have a colder and wetter December than usual, with a good part of the East hit with the biggest snowfall ever recorded for the month. The drop in starts all came from single-family units, but they’re still 27.7% above their January/February 2009 lows. Volatile multi-unit starts were up 12.2% for the month, following their 69.8% November rebound.  Building permits, which are less effected by weather, were UP 10.9% in December, to an annual rate of 653,000 units, well above expectations. There was an 8.3% hike in permits for single-family units, which are up 48.5% over their January 2009 low. Over the past two months, the 18.5% gain in building permits is the largest in 20 years. In line with this, the National Association of Home Builders, which held its annual convention last week, reported that builders expect to start construction on 610,000 homes in 2010. That’s UP 38% over last year!

Snoqualmie Pass Real Estate, Mortgage, and Economy 1/11/10

It was reported last week that Pending Home Sales (contracts on existing homes) fell 16% in November, not at all surprising since buyers expected the $8,000 tax credit to expire at the end of October. This artificially boosted contract signings for August-October and artificially depressed them for November. Still, November pending sales were higher than at any time from mid-2007 to mid-2009.

In the mortgage world, most experts feel the rates on 30-year fixed-rate mortgages will head up during the next two years, so smart homebuyers are focusing on taking advantage of the present very favorable rate situation along with the tax credit still available.

A NICE START… The new year began very nicely on Wall Street with investors optimistically sending all major stock market indexes UP for the week. There were several pieces of economic data to feel good about. The ISM Manufacturing index rose to 55.9 in December, its highest level since April 2006, signaling industrial expansion five months in a row and indicating real economic growth at a 4.6% annual rate. The December ISM Services index hit 50.1, also signaling expansion, with its employment index moving to the highest level since September 2008.  For the week, the Dow was UP 1.8%, to 10618.19; the S&P 500 was UP 2.7%, to 1144.98; while the Nasdaq was UP 2.1%, to 2317.17.

Retailers across the board came in with higher than expected results for December. For example, Target’s same store sales were up 1.8% and Sears were up 0.4%, with Q4 earnings beating estimates. Auto companies reported December sales at an 11.2 million annual rate. This was a faster rise than expected, up 16% from June. Cash-for-clunkers got things started, but car and truck sales continue to build.

Thursday, Initial Unemployment Claims came in at 434,000, putting the four-week moving average at its lowest level since September 2008. Continuing Claims shrank to 4.8 million. Challenger, Gray & Christmas, the major Chicago-based job placement firm, reported layoffs down 72.9% from last year. But the big news came Friday with the December Employment Report. Nonfarm jobs declined 85,000, not as good as expected, but revisions to the prior month’s data showed jobs INCREASED 4,000 in November, their first gain in two years! The December unemployment rate held steady at 10.0%

Snoqualmie Pass Real Estate, Mortgage, and Economy 12/14/09

Here is this weeks report for Snoqualmie Pass Real Estate.

KEEPING ON KEEPING ON… For the fourth week in a row the markets moved sideways, with one index slightly up, one a bit down and the third flat. Recently, there haven’t been any extreme weekly market moves in the indexes, up or down. Investors aren’t quite ready to believe things are as good as some indicators suggest, but they’re also not buying into any of the bleak scenarios some pundits still proffer.  Those pundits jumped all over Fed Chairman Ben Bernanke’s reference in a speech to “formidable headwinds” for the economy. He was actually cautioning us to not expect economic expansion to be too dramatic. His also said: “…our economy has made important progress during the past year….the financial system and the economy have moved back from the brink of collapse, economic growth has returned, and the signs of recovery have become more widespread.” Why didn’t those experts focus on this observation of “more widespread recovery”?  For the week, the Dow went UP 0.8%, to 10471.50; the S&P 500 was up just 0.43 points, to 1106.41; while the Nasdaq went down 0.2%, to 2190.31.

They were probably too busy ignoring the good news of a decreasing trade deficit, with exports UP six months in a row, at a 26.4% annual rate! We also saw the four-week moving average of unemployment claims fall to 474,000, its lowest level since September 2008. In fact, for the last six months, the decline in initial claims is faster than the declines during the “jobless” recoveries of 1991-92 and 2002, a signal this recovery may not be jobless. The week ended with November Retail Sales UP a way-better-than-expected 1.3%. So it came as no surprise that University of Michigan Consumer Sentiment also blew past consensus expectations!   If you have any questions, please contact me.

Last week gave us more proof the country’s housing market is heating up. According to Freddie Mac’s quarterly national Conventional Home Price Index (CMHPI), home prices were UP 0.9% in Q3 for their second quarterly increase in a row! And the Q2 number was revised upward to 2.0%! These rises have taken back about two-fifths of the price declines seen in Q4 of 2008 and Q1 of this year.  Freddie Mac’s chief economist said, “the home-price gains of the past two quarters reflect improving existing-home sales…. Sales volume was up 15% between the first and third quarters of this year.” He also added: “The lowest average fixed-rate mortgage rates in a half-century, lower house prices, incentives to encourage first-time buyers, and loan modification efforts to stem foreclosures have worked together to support sales and reduce the inventory of unsold homes.”