This Week is employment week on Friday, between Monday and Friday however there are a number of key economic reports. The markets start Monday with developments over the weekend in Egypt and the equity markets looking toppy and possibly headed for a long overdue correction. At the end of last week the famous 10 yr treasury note yield fell to 3.31% on Friday and closed at 3.33%, the bottom of its six week trading range (33 market days). A break in stocks and increased fears about the uprisings in Tunisia and Egypt should push interest rates lower on safety moves, if however stocks hold and there is no escalation of concerns in the mid-east the 10 yr and mortgages will move back to the top of their ranges on yields.
Economic data this week has Dec personal income and spending, the ISM manufacturing and service sectors indexes, Jan auto sales, Dec construction spending and the employment report. Early forecasts for all non-farm job growth is for an increase of 150K jobs, private non-farm jobs up 163K and the unemployment rates at 9.6%, up 0.2% from Dec. There are no Treasury auctions this week.
Mortgage interest rates have been very stable now for the past five weeks, not a bad thing as consumers continue to digest the spike up in rates last Nov and early Dec. If the rate markets do improve this week it will present an opportunity to get deals done, unlikely any rate improvements will last long with the economic outlook improving. Lots of talk about inflation, although it hasn't shown itself yet with rates so low just the thought of it will keep longer term rates for holding these low levels for long.
When will housing come back in California? Five experts offer their views
Los Angeles Times - January 1, 2011
Foreclosures in the state are still high. Sales of new homes are at historic lows. And millions of homeowners are underwater on their mortgages. So what's the outlook for 2011 and beyond?
As housing recoveries go, this one is in need of a cure.
Homeownership — and the buying and selling of residences — is an economic keystone that carries overwhelming weight in Californians' personal sense of financial well-being.
But the momentum of the state's housing rebound has faltered, with sales falling and prices softening despite bargain-basement interest rates. Foreclosures in California are still high. Sales of new homes are at historic lows. The construction sector is in the doldrums. And millions of the state's homeowners owe more on their mortgages than their properties are worth.
Real estate historically has helped give a boost to economies exiting a recession, but the severity of this bust is nearly unprecedented: Californians have lost $1.73 trillion worth of equity in their homes since prices peaked in 2007, according to Moody's Economy.com.
Although California's housing market free-fall ended in spring 2009, the weakness after the expiration of federal tax credits for buyers last year has called into question the sustainability of the recovery.
The Times asked five California experts for their take on the state of real estate and what they think is needed to get the housing market moving again. They range from the pessimism of a foreclosure specialist to the decidedly more upbeat view of a Realtor association economist.
• Richard Green, director of the USC Lusk Center for Real Estate, predicts home prices will remain flat in 2011.
California's recovery will hinge on location, said Green, who held professorships at several universities and worked as a principal economist at Freddie Mac before becoming director of the Lusk center.
"Draw a line from El Centro up to Sacramento and think of all the towns up and down that line. Unless we have hyperinflation in general in the economy — prices going up a lot — I would guess that in my lifetime we will not see a return to the prices that we had at the peak," Green said.
"Now, places like La Jolla, Malibu, Laguna, Huntington Beach, Atherton, Palo Alto, the city of San Francisco, Marin County, those are places where within the next five years I could easily imagine prices returning to their peak."
"The markets in the Central Valley were much more bubbly than the markets on the coast," he said. "You have very few people who make a lot of money in these places."
"Whereas a place like Silicon Valley, or a place like West Los Angeles, there is a critical mass of very high-income people.… That means you have a large number of people who can afford to spend in the neighborhood of $1 million on a house, and these are desirable places."
"The more a property is a commodity that you can easily substitute for something else, the less the chance it will ever come back to its peak. The rarer a property is, the more likely it's going to come back quickly."
• Leslie Appleton-Young, chief economist for the California Assn. of Realtors, predicts home prices will rise 2% in 2011.
There are few professionals who would like more to see the housing market bounce back to the heady days of old than Realtors. Real estate agents made a killing when the housing market soared and then took a pounding when it tanked.
During the boom years, Appleton-Young said, she espoused the theory that rising prices mattered more than making solid loans. That theory appeared correct as long as values kept rising.
"What happened this time was prices plummeted and everyone was in trouble," she said.
These days, the economist sees little chance of the market returning to its previous heights anytime soon.
"We are in a very slow-moving recovery with prices stabilized at the moderate and low end," Appleton-Young said. "We are still seeing price attrition and price softening at the upper ends of the market."
2011 will be lackluster, she said, but that does not mean California is not improving.
"We are almost two years into a price recovery. The problem is not to look at 2007 as the normal market that you are moving back up to, because it wasn't a normal market. We are back in an underwriting environment that actually makes sense."
"You are seeing prices recovering throughout the state," she added. "It is just going to take time."
• Bruce Norris, president of Norris Group in Riverside, expects home prices to fall 5% in 2011.
The real estate slump has been good to Norris, an investor in foreclosed homes. But he believes the market is being artificially boosted by government programs and is set to fall further this year.
"We are in an artificial recovery," Norris said. "It's government controlled and manipulated. We have extremely favorable interest rates that we really should not have, based on our debt. We have supported real estate with tax rebates, and we have prevented inventory from showing up by allowing people to be two and three years behind on their mortgages."
Foreclosed homes, in particular, are being kept off the market through loan modification attempts and other policies.
"You've had a slew of programs trying to prevent inventory from showing up, and that prevents reality from happening," Norris said. "It's definitely standing in the way of the natural process."
What does the housing market need most?
"Demand for houses," Norris said. "Somebody able to qualify for a loan and actually being able to get it. And that's why it is not going to happen."
• Emile Haddad, chief executive of FivePoint Communities Inc., expects home prices to "stabilize" in 2011 but declined to make a specific price prediction.
Determining whether the housing market is on steady footing is essential to developers such as Haddad, the former chief investment officer for Lennar Corp. Haddad, along with Lennar, is now part owner of FivePoint, which is managing the development of the Valencia community in Los Angeles County and other high-profile projects. He believes a recovery has yet to take hold in California.
"We are bumping along the bottom," Haddad said. "And that is a good thing, because that is the first thing that you need in order to start seeing a housing recovery. You need to have a period where values are not going down and the trend is moving in a different direction."
California's coastal markets will come back once the job market returns, he said, lifting consumer confidence. But California's inland areas are more likely to lag behind, and builders will have to reconsider the kind of product they offer in such places.
"In the Central Valley, values have changed a lot," Haddad said. "You are not going to be able to really have enough depth in the market to sell large, expensive homes, because the ceiling of value is way down."
"If you pick on a market like Orange County," he said, "it is still a place that once people feel confident.... I believe people will be out buying homes."
Affordability is working in the market's favor.
"We have a mortgage environment that is more favorable — the rates are down — but people are not able to get mortgages, and that is not helping. The most important thing we need is jobs and job creation."
"Affordability is something I look at, and obviously that is a very attractive metric right now.... There is a value proposition out there right now that is very attractive, that we haven't seen in four decades."
• Christopher Thornberg, founding principal of Beacon Economics, predicts home prices will remain flat in 2011.
Once a senior economist for the UCLA Anderson Forecast, Thornberg was one of the first to predict the housing crash, pointing to prices that were way out of line with what people earned.
In that vein, he views the plunge in home values as its own recovery of sorts "because that is when prices went from stupid-high levels to levels that made sense again," Thornberg said. "Now we are in a post-recovery recovery, if you will."
"This is not the bust. A bust implies that prices have fallen to levels that are too low. And I would argue that prices today are relatively high. It's interest rates that have given us this degree of affordability, and from that perspective that is why I don't expect prices to come down."
Since helping found Beacon in 2006, Thornberg has become chief economist for state Controller John Chiang and chair of the Controller's Council of Economic Advisors. He serves on the advisory board of New York hedge fund Paulson & Co. He has been a forceful critic of the Obama administration's policy attempts to right the market.
"The administration has tried, through a variety of policy methods, to try and spike the market," he said.
Foreclosures in the state are still high. Sales of new homes are at historic lows. And millions of homeowners are underwater on their mortgages. So what's the outlook for 2011 and beyond?
As housing recoveries go, this one is in need of a cure.
Homeownership — and the buying and selling of residences — is an economic keystone that carries overwhelming weight in Californians' personal sense of financial well-being.
But the momentum of the state's housing rebound has faltered, with sales falling and prices softening despite bargain-basement interest rates. Foreclosures in California are still high. Sales of new homes are at historic lows. The construction sector is in the doldrums. And millions of the state's homeowners owe more on their mortgages than their properties are worth.
Real estate historically has helped give a boost to economies exiting a recession, but the severity of this bust is nearly unprecedented: Californians have lost $1.73 trillion worth of equity in their homes since prices peaked in 2007, according to Moody's Economy.com.
Although California's housing market free-fall ended in spring 2009, the weakness after the expiration of federal tax credits for buyers last year has called into question the sustainability of the recovery.
The Times asked five California experts for their take on the state of real estate and what they think is needed to get the housing market moving again. They range from the pessimism of a foreclosure specialist to the decidedly more upbeat view of a Realtor association economist.
• Richard Green, director of the USC Lusk Center for Real Estate, predicts home prices will remain flat in 2011.
California's recovery will hinge on location, said Green, who held professorships at several universities and worked as a principal economist at Freddie Mac before becoming director of the Lusk center.
"Draw a line from El Centro up to Sacramento and think of all the towns up and down that line. Unless we have hyperinflation in general in the economy — prices going up a lot — I would guess that in my lifetime we will not see a return to the prices that we had at the peak," Green said.
"Now, places like La Jolla, Malibu, Laguna, Huntington Beach, Atherton, Palo Alto, the city of San Francisco, Marin County, those are places where within the next five years I could easily imagine prices returning to their peak."
"The markets in the Central Valley were much more bubbly than the markets on the coast," he said. "You have very few people who make a lot of money in these places."
"Whereas a place like Silicon Valley, or a place like West Los Angeles, there is a critical mass of very high-income people.… That means you have a large number of people who can afford to spend in the neighborhood of $1 million on a house, and these are desirable places."
"The more a property is a commodity that you can easily substitute for something else, the less the chance it will ever come back to its peak. The rarer a property is, the more likely it's going to come back quickly."
• Leslie Appleton-Young, chief economist for the California Assn. of Realtors, predicts home prices will rise 2% in 2011.
There are few professionals who would like more to see the housing market bounce back to the heady days of old than Realtors. Real estate agents made a killing when the housing market soared and then took a pounding when it tanked.
During the boom years, Appleton-Young said, she espoused the theory that rising prices mattered more than making solid loans. That theory appeared correct as long as values kept rising.
"What happened this time was prices plummeted and everyone was in trouble," she said.
These days, the economist sees little chance of the market returning to its previous heights anytime soon.
"We are in a very slow-moving recovery with prices stabilized at the moderate and low end," Appleton-Young said. "We are still seeing price attrition and price softening at the upper ends of the market."
2011 will be lackluster, she said, but that does not mean California is not improving.
"We are almost two years into a price recovery. The problem is not to look at 2007 as the normal market that you are moving back up to, because it wasn't a normal market. We are back in an underwriting environment that actually makes sense."
"You are seeing prices recovering throughout the state," she added. "It is just going to take time."
• Bruce Norris, president of Norris Group in Riverside, expects home prices to fall 5% in 2011.
The real estate slump has been good to Norris, an investor in foreclosed homes. But he believes the market is being artificially boosted by government programs and is set to fall further this year.
"We are in an artificial recovery," Norris said. "It's government controlled and manipulated. We have extremely favorable interest rates that we really should not have, based on our debt. We have supported real estate with tax rebates, and we have prevented inventory from showing up by allowing people to be two and three years behind on their mortgages."
Foreclosed homes, in particular, are being kept off the market through loan modification attempts and other policies.
"You've had a slew of programs trying to prevent inventory from showing up, and that prevents reality from happening," Norris said. "It's definitely standing in the way of the natural process."
What does the housing market need most?
"Demand for houses," Norris said. "Somebody able to qualify for a loan and actually being able to get it. And that's why it is not going to happen."
• Emile Haddad, chief executive of FivePoint Communities Inc., expects home prices to "stabilize" in 2011 but declined to make a specific price prediction.
Determining whether the housing market is on steady footing is essential to developers such as Haddad, the former chief investment officer for Lennar Corp. Haddad, along with Lennar, is now part owner of FivePoint, which is managing the development of the Valencia community in Los Angeles County and other high-profile projects. He believes a recovery has yet to take hold in California.
"We are bumping along the bottom," Haddad said. "And that is a good thing, because that is the first thing that you need in order to start seeing a housing recovery. You need to have a period where values are not going down and the trend is moving in a different direction."
California's coastal markets will come back once the job market returns, he said, lifting consumer confidence. But California's inland areas are more likely to lag behind, and builders will have to reconsider the kind of product they offer in such places.
"In the Central Valley, values have changed a lot," Haddad said. "You are not going to be able to really have enough depth in the market to sell large, expensive homes, because the ceiling of value is way down."
"If you pick on a market like Orange County," he said, "it is still a place that once people feel confident.... I believe people will be out buying homes."
Affordability is working in the market's favor.
"We have a mortgage environment that is more favorable — the rates are down — but people are not able to get mortgages, and that is not helping. The most important thing we need is jobs and job creation."
"Affordability is something I look at, and obviously that is a very attractive metric right now.... There is a value proposition out there right now that is very attractive, that we haven't seen in four decades."
• Christopher Thornberg, founding principal of Beacon Economics, predicts home prices will remain flat in 2011.
Once a senior economist for the UCLA Anderson Forecast, Thornberg was one of the first to predict the housing crash, pointing to prices that were way out of line with what people earned.
In that vein, he views the plunge in home values as its own recovery of sorts "because that is when prices went from stupid-high levels to levels that made sense again," Thornberg said. "Now we are in a post-recovery recovery, if you will."
"This is not the bust. A bust implies that prices have fallen to levels that are too low. And I would argue that prices today are relatively high. It's interest rates that have given us this degree of affordability, and from that perspective that is why I don't expect prices to come down."
Since helping found Beacon in 2006, Thornberg has become chief economist for state Controller John Chiang and chair of the Controller's Council of Economic Advisors. He serves on the advisory board of New York hedge fund Paulson & Co. He has been a forceful critic of the Obama administration's policy attempts to right the market.
"The administration has tried, through a variety of policy methods, to try and spike the market," he said.
Market update & advice from our brokerage
Happy 2011 to everyone! Let's all hope that this year is better for many people than 2009 or 2010.
At the moment we have a supply of slightly over 6 months of detached homes and slightly under 6 months for attached homes which means the market is in the neutral pricing range. If we add the homes that went "contingent" (short sales under new contracts but awaiting lender approvals which could take 6 months) to the new escrows we show a supply of around 2 months, but since these can not be counted on to close we include them just for reference. You can see that both the inventory and number of new escrows are down but the turnover rate is only slightly slower than at the end of November 2010. While the number of sales for the year decreased the average prices increased and the average percentage of the listed price held firm.
Even though interest rates have increased they are still very, very low and won't stay that way forever, as are prices. The only real issue still being faced by the local economy is unemployment which is still high. I hope this helps you stay abreast of our local market with factual input. Let me know what questions you have and have a great 2011.
R. Ungar, Associate Broker – Keller Williams Realty
At the moment we have a supply of slightly over 6 months of detached homes and slightly under 6 months for attached homes which means the market is in the neutral pricing range. If we add the homes that went "contingent" (short sales under new contracts but awaiting lender approvals which could take 6 months) to the new escrows we show a supply of around 2 months, but since these can not be counted on to close we include them just for reference. You can see that both the inventory and number of new escrows are down but the turnover rate is only slightly slower than at the end of November 2010. While the number of sales for the year decreased the average prices increased and the average percentage of the listed price held firm.
Even though interest rates have increased they are still very, very low and won't stay that way forever, as are prices. The only real issue still being faced by the local economy is unemployment which is still high. I hope this helps you stay abreast of our local market with factual input. Let me know what questions you have and have a great 2011.
R. Ungar, Associate Broker – Keller Williams Realty
Financial Market Update
This Week: its back to work with a full compliment of investors and traders after two weeks of very low trading volume. The year ended on Friday with an unexpected strong rally in the bond and mortgage markets, the 10 yr note yield fell 9 basis points and mortgage prices increased by .69 basis points; we believe it more short-covering than anything substantial, but we will take every improvement the market provides.
This week there is no Treasury borrowing, there is data everyday ending with the Dec employment report on Friday. The FOMC will release the minutes from the Dec 15th FOMC meeting on Tuesday, should get a lot of attention as always. 2010 ended with the increasingly strong belief that 2011 economic growth will increase, sending the equity market to one of the best years in many years. The situation in Washington will change dramatically with Republicans now in control of the House and more strength in the Senate. One of the first things Republicans want to do is work on Obamacare, making what most believe are necessary changes, the issue is what changes will everyone agree are the right ones.
January and February markets will continue to wrestle over the outlook for the economy; it will likely take into Feb to get a handle on consumer spending. Wall Street for the most part is expecting consumers to increase spending, we don't believe that will be the case however. Consumers will more likely save than spend, the demographic changes with 10K baby boomers a day turning 65, a trend that will continue for the next 10+ years and spending by the huge population of boomers won't meet the expectations currently out there. We believe 2011 will disappoint, consumers are more savvy than all those that work east of the Hudson River. Housing is still in dire shape and will continue all through 2011. Inflation fears are probably overdone but still will weigh on the bond and mortgage markets. Monday the 10 yr note yield opens at crucial technical levels, more improvement will change the near term outlook from bearish on rates to one of neutrality. We suggest potential home buyers take advantage of the opportunity if rates improve early this year; it is very unlikely longer term rates will decline much and more likely to increase as the year progresses.
This week there is no Treasury borrowing, there is data everyday ending with the Dec employment report on Friday. The FOMC will release the minutes from the Dec 15th FOMC meeting on Tuesday, should get a lot of attention as always. 2010 ended with the increasingly strong belief that 2011 economic growth will increase, sending the equity market to one of the best years in many years. The situation in Washington will change dramatically with Republicans now in control of the House and more strength in the Senate. One of the first things Republicans want to do is work on Obamacare, making what most believe are necessary changes, the issue is what changes will everyone agree are the right ones.
January and February markets will continue to wrestle over the outlook for the economy; it will likely take into Feb to get a handle on consumer spending. Wall Street for the most part is expecting consumers to increase spending, we don't believe that will be the case however. Consumers will more likely save than spend, the demographic changes with 10K baby boomers a day turning 65, a trend that will continue for the next 10+ years and spending by the huge population of boomers won't meet the expectations currently out there. We believe 2011 will disappoint, consumers are more savvy than all those that work east of the Hudson River. Housing is still in dire shape and will continue all through 2011. Inflation fears are probably overdone but still will weigh on the bond and mortgage markets. Monday the 10 yr note yield opens at crucial technical levels, more improvement will change the near term outlook from bearish on rates to one of neutrality. We suggest potential home buyers take advantage of the opportunity if rates improve early this year; it is very unlikely longer term rates will decline much and more likely to increase as the year progresses.
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