Poor Start for US Real Estate

March 29, 2010

With the poor housing market performance so far in 2010, the next few months will be critical in defining whether 2010 ultimately marks the beginning of recovery in the real estate market. With the Federal Reserve ending its mortgage backed securities purchase program, and interest rates expected to increase later this year, the real estate market could be in for a rough ride for the remainder of 2010. See the following article from The Street for more on this.

Two months ago I concluded in an article on how the housing market has a way to go that there were some signs of hope for 2010.

This article will look at the data so far in 2010 which, for January and February, have seen major disappointments for housing markets. If this does not change in the next two months, 2010 may be worse than 2009. That is not what many have been expecting.

Collapse of the Housing Bubble of 2009

Sales volumes have collapsed from highs reached in 2009. While existing home sales remain above the lowest points of early 2009, new home sales have reached new lows. The recent data can been seen in the chart on the next page. This is not like the housing bubble that peaked in 2006, but it certainly looks like a micro bubble.

The chart includes these negative features: Quadratic trend lines are cupped downward; new home sales have been below the three-month moving average since July; and existing home sales have been below the three-month moving average since December.

home  sales  graph

The box drawn for March and April indicates the time frame that will set the tenor for the rest of 2010. The reasons for this assertion are:

  • These two months are the final two months for purchase contracts to be signed for purchase of homes with eligibility for extended federal tax credits.
  • These are the months where recovery will occur from any effects of severe winter weather.
  • This comes as the Fed ends purchase of MBS (mortgage backed securities) in support of the housing market.
  • The expectation of higher future interest rates should move demand forward into these months from later in the year.

If there is not a turn of sales volume to the upside in March and April, I see a disappointing year for home sales, perhaps well below 2009.
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USD: Local economic indicators up for 11th straight month

March 29, 2010

The University of San Diego’s local index of leading economic indicators inched up .1 percent in February, the 11th consecutive monthly increase, it was announced Thursday.

According to professor Alan Gin, who compiles the monthly index for USD’s Burnham-Moore Center for Real Estate, the outlook for the San Diego economy remains positive, but he expects slow growth in the year ahead.

Moderate gains in building permits, help-wanted advertising, the outlook for the national economy and fewer people filing for unemployment insurance were outweighed by declines in local stock prices and consumer confidence, according to the index.

One area of potential concern is the budgetary difficulties faced by state and local governments, according to the index.

Gin also cautioned that there could be another wave of home foreclosures due to severe job losses in the local economy and further weakness in commercial real estate.

After unprecedented volatility for the last couple of years, the USD index has “settled down,” with no major change in any component in either direction for the past two months, according to Gin.

February’s gain, however, was the smallest in 11 months, according to the index.

City News Service staff wrote and edited this story.


Vancouver – Real Estate market to be more ‘subdued” after hot spring

March 29, 2010

VANCOUVER — Canada’s real estate markets should remain heated through the spring, fuelled by generationally low mortgage rates, before settling into “more subdued” conditions as those rates rise, says the latest forecast from Scotia Economics.

Scotia Economics senior economist Adrienne Warren said the last decade saw “the strongest decade of real price appreciation in at least 50 years,” which will require an extended period for the economy to catch up with job creation and wage increases.

“If people were looking back at the last decade thinking that was normal, well it wasn’t normal, it was an exceptional decade,” Warren said in an interview.

Right now, she said, buyers are “bombarded by news headlines saying, and I think they’re correct,” that rates have hit bottom and will go higher, which is “adding a sense of urgency” to the market.

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Canada’s housing boom continues to outpace recovery in developed countries

March 25, 2010

TORONTO – Canada’s housing boom will continue this spring as exceptionally low mortgage rates – and the expectation that borrowing costs will soon be headed higher – add a sense of urgency to consumer buying.

A Scotiabank global real estate trends report released Tuesday predicts most Canadian regions will remain sellers’ markets for the first half of the year, as strong demand and rising prices continue. “I think you’re going to have a very active spring market, probably some cooling off in the second half of the year,” Adrienne Warren, the Scotiabank economist who wrote the report said in a presentation Tuesday.

Scotiabank expects about 510,000 home sales this year, up ten per cent from 2009, but just shy of the 2007 record. Average prices are forecast to increase about eight per cent to a record $345,000, while housing starts are expected to reach 190,000, up from 149,000 last year.

The economic recovery from last year’s painful recession has improved consumer confidence, although a bounceback in the jobs market is taking more time. Just over a third of the 417,000 jobs lost in the 2008-2009 recession have been replaced and the jobless rate is still at 8.2 per cent, only half a point below its high last August.

Most experts predict the rise in consumer confidence about the economy, and low interest rates, are behind the continued strength in the housing market.

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U.S. residential real estate markets remain weak

March 25, 2010

Existing home sales in the U.S. declined in February, continuing a 3 month trend, according to the National Association of Realtors. However, February’s sales were a 7% improvement over last February.

The level of existing home sales is an important leading indicator for new home construction, which in turn makes an important contribution to the growth of the gross domestic product.

See: U.S. existing home sales in February displayed further weakness, by Alex Carrick, CanaData Chief Economist.


NORTH AMERICAN & INTERNATIONAL ECONOMIC HIGHLIGHTS

March 3, 2010

NORTH AMERICAN & INTERNATIONAL ECONOMIC HIGHLIGHTS – Benjamin Tal, Senior Economist at CIBC

The recent increase in the US Fed Discount Rate means very little in practical terms. The discount rate is the
interest rate that the Fed charges banks for emergency loans and it is hardly being used. The rate hike
however, signals the first step in a long journey towards removing liquidity from the system.

The move makes sense given that the Fed has closed many of its emergency lending facilities and demand for
funding has slowed substantially. In fact, borrowing from this credit facility has totaled only $20 billion over the
past three months. Given that normally the gap between the discount rate and the fed funds rate is 100 basis
points and today, it is standing at 50 basis points suggests that we might see an additional increase in this rate
in the near future. What counts, however, is the fed funds rate and this rate is unlikely to rise until early 2011.

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