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National Economic Update ~ Has Housing Finally Turned Around?

S&P/CASE-SHILLER
The S&P/Case-Shiller national home price index, which tracks more than 80% of the housing market in the United States, climbed 6.9% in Q2 compared to Q1 of 2012.

“We seem to be witnessing exactly what we needed for a sustained recovery; monthly increases coupled with improving annual rates of change,” said David Blitzer, a spokesman for S&P, in a statement. “The market may have finally turned around.”

Here is some supporting data:

• Two other key indexes covered in the S&P/Case-Shiller report also show gains. The 20-city index was up 6% for the quarter and the 10-city index rose 5.8%.

• National prices were up 1.2% compared with a year earlier, and the 20-city and 10-city indexes also gained y/y. It was the first time all three measures showed positive annual growth rates since the summer of 2010, when generous tax credits for homebuyers were in place.

• In July, new home sales were 25% better than a year earlier; existing home sales gained 10% y/y; and developers applied for 30% more residential building permits.

MARK ZANDI / MOODY’S
• The steep increase in home prices “feels really good after six years of straight down,” said Mark Zandi, chief economist of Moody’s Analytics.

• He cautioned about overstate the case for the housing recovery. The mix of homes being sold has changed lately, with fewer repossessed homes on the market, noting that those discounted sales of had driven down prices.

• Zandi believes the positive news on housing will carry over to the rest of the economy saying, “Housing is beginning to act as a tailwind for the recovery.”

MICHAEL FRATANTONI / MBA
• The home price improvement will likely have a positive impact on foreclosure rates, according to Michael Fratantoni, vice president for research and economics for the Mortgage Bankers Association.

• Foreclosures have already been falling and could drop more should the upswing in home prices continue.

• Rising home values means rising equity, resulting in fewer borrowers underwater. Plus an improving housing market will also give homeowners more confidence in their home investment.

• “There has also been a lot of concern about strategic defaults,” said Fratantoni. “That should ease now. When home prices go up, people have a financial incentive to hold onto their homes and they’re less likely to walk away.”

DOUG DUNCAN / FANNIE MAE
• Rising prices are likely to push potential homebuyers off the fence, where many have been waiting out the price decline, according to Doug Duncan, chief economist for Fannie Mae.

• “Their perception that we hit the bottom takes out the risk of buying into a falling market,” he said. “That should increase demand…if they also believe that mortgage rates have reached a bottom as well.”

Arizona and National Economic Update

Consumer credit was the major newsmaker last week, with April consumer borrowing increasing at an annual rate of 3 percent to hit $2.55 trillion for the month, the Federal Reserve reported. Revolving credit, such as credit cards, decreased at an annual rate of 4.8 percent, ticking down to $862.3 billion. Non-revolving credit, such as car loans and student loans, increased at an annual rate of 7.1 percent to $1.68 trillion.

Much of the gains in non-revolving debt were due to student loans, according to Dana Saporta, director of U.S. economics research at Credit Suisse.

Unit labor costs in non-farm businesses increased 1.3 percent in the first quarter of 2012, while hourly compensation increased 0.4 percent. Unit labor costs rose 0.9 percent over the last four quarters.

In the week ending June 2, initial claims for jobless benefits dropped to 377,000, a decrease of 12,000 from the previous week’s revised figure of 389,000. The four-week moving average was 377,750, an increase of 1,750 from the previous week’s revised average of 376,000.

The total number of insured unemployed workers during the week ending May 26 hit 3,293,000, an increase of 34,000 from the preceding week’s revised level of 3,259,000. The four-week moving average was 3,279,500, an increase of 11,500 from the preceding week’s revised average of 3,268,000.

The U.S. economy is still growing but slowly, and there appears to be a little more risk than earlier in the spring. Credit is cheap but consumers will remain cautious due to the excessive publicity of the bad economic data and the exclusion of the good. This is also impacting business hiring decisions. Hopefully growth will accelerate to a more respectable rate by the end of the year, maybe by the end of fall. No doubt this will be wholly due to the re-election of President Obama or the election of Presidential Candidate Romney. Well, at least that’s what MSNBC and Fox News will be telling us.

State of The Economy Update ~ National and Arizona

Americans are borrowing more, with consumer credit shooting up in March to an annual rate of 10.2 percent, the Federal Reserve reported last week. Total consumer borrowing amounted to $2.54 trillion for the month, representing a $21.36 billion gain over the previous month.

Revolving debt, such as credit card debt, amounted to $803.6 trillion in comparison to February’s $798.5 trillion, and grew by an annual rate of 7.8 percent. Non-revolving debt, such as student loans and car loans, totaled $1.738 trillion, in comparison to February’s $1.722 trillion, and grew by an annual rate of 11.3 percent for the month.

The question is whether or not the gains represented increased economic activity and confidence.

“The optimistic read is that consumers’ improved outlook on the economy and employment prospects led them to feel comfortable spending on credit, while a more downbeat interpretation is that credit is needed for consumers to keep up,” analysts at Nomura Global Economics remarked in a public statement regarding the Fed’s data.

In employment news, initial jobless claims for the week ending May 5 dipped to 367,000, a decrease of 1,000 from the previous week’s revised figure of 368,000, the Employment and Training Administration reported last week. The four-week moving average was 379,000, a decrease of 5,250 from the previous week’s revised average of 384,250.

The Administration also reported that the total number of unemployed workers covered by insurance during the week ending April 28 dropped to 3,229,000, a decrease of 61,000 from the preceding week’s revised level of 3,290,000. The four-week moving average was 3,290,000, a decrease of 10,500 from the preceding week’s revised average of 3,300,500.

In the Arizona Economy, the outlook is a bit more favorable. Employment gains in Arizona should continue at a pace of around 2.0% for now. Sales tax collections will improve moderately as the year progresses as will other government tax revenues.

National and Arizona Economic Update

It was a busy week for data. Most of it was positive and indicates continued modest growth. Real gross domestic product–the output of goods and services produced by labor and property located in the U. S.–increased at an annual rate of 3.0% in the forth quarter of 2011 (that is from the third quarter to the forth quarter), according to the “second” estimate released by the Bureau of Economic Analysis. In the third quarter, real GDP increased 1.8%. Consumer confidence was also higher. The Conference Board Consumer Confidence Index, which had decreased in January, increased in February. The index now stands at 70.8 (1985=100), up from 61.5 in January. While the index is slightly down from a year ago, it is considerably higher than readings in the summer and fall of 2011.

Personal income increased by 0.3%, which is at 3.6% annual growth, in January. Disposable personal income increased by 0.1% and personal consumption expenditures (PCE) increased by 0.2% in January as well. While these rates of growth are slower than in December, they are still moving in the right direction. Vehicle sales continue to expand a good clip. Sales of autos and light trucks were up by 12.2% in January, 2012 over January, 2011. They were also up on a seasonally adjusted basis over December, 2011.

The Institute of Supply Management Index was 52.4 in February. This was a decrease of 1.7 points from January’s reading of 54.1. The index indicates continued expansion in the manufacturing sector. Indeed, February was the 31st consecutive month of manufacturing expansion. New orders for manufactured durable goods in January declined by 4.0%. The decrease followed three consecutive monthly increases. National jobless claims were modestly lower, continuing what has been a modestly positive trend. Construction spending during January 2012 was 0.1% below the December 2011 level but stood 7.1% above year earlier levels. For the month, private sector levels of spending on construction were virtually flat from December while public spending was modestly down.

Finally, the Case-Shiller home price indices (for both the 10 and 20 city index) fell in December. Both the 10 and 20 city composites fell by 1.1% in December over November and now stand about 4.0% below year earlier levels. The most interesting news, though, is that Phoenix was one of only two cities in the index that showed an increase in housing prices. Miami was the other. The index for Phoenix was up 0.8 in December over November. Phoenix also experienced an increase (0.6%) in November over October. Thus, it appears that the dynamics in terms of the balance of supply and demand in Greater Phoenix are becoming more positive.

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