Daily Real Estate News  |  May 27, 2009

Forecasters Say Recession Nearing End

More than 90 percent of economists think the recession is nearing its end, but they don't expect the economy to soar anytime soon.

Nearly 75 percent of economists, surveyed by the National Association for Business Economics, say that the recession will end in the third quarter. Another 19 percent think the turnaround will come in the fourth quarter. The rest are betting on the first quarter of 2010.

Americans seem to believe that things are getting better too. The Conference Board's Consumer Confidence Index rose 14.1 points in May to 54.9, the second month in a row in which there have been an increase.

Forecasters say that home sales will bottom out in the second quarter, an important stabilizing factor.

Source: The Associated Press, Jeannine Aversa (05/27/2009)

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I am a fan of economics and economic theory.  I receive this economist's newsletter.  Here is his latest:

May 20, 2009
Domestic ABCs
Written by Jeff Thredgold, CSP, President, Thredgold Economic Associates

This week’s Tea Leaf is our semi-annual alphabetic view of the U.S. economy. Global ABCs will follow, presumably in two weeks…

America—now pursuing one of the most aggressive moves toward the left (bigger and bigger government) on record.  Unfortunately, the phrase “we’re from the government and we’re here to help you” still scares people to death

Bailouts—the term is applied to all too many economic and financial market stabilization programs.  The “investment” into many of America’s banks will ultimately be a profitable one for U.S. taxpayers

Consumer Confidence—a very critical component as the nation looks to emerge from recession…before the end of the year

Dollar—has strengthened against many currencies during the past 12 months including the euro, the pound, and the Canadian $, while weakening slightly versus the yen.  I expect modest additional dollar strength

Energy—talk is cheap.  You can’t lessen the nation’s dependence on foreign oil without greater access to oil and gas on Alaska’s North Slope and off our coasts…and greater use of nuclear power

Federal Reserve—easily the most credible institution in the nation’s capital. The Fed will have its work cut out to restrain inflation after 2010

Global Economy—recession is the norm most everywhere, excluding China and India, which have slowed. Growth of those two Asian giants, combined with renewed U.S. growth, could lead the global economy out of recession by mid-2010

Health Care—front and center on Obama’s agenda, with major changes in the works.  Some combination of government, insurance providers, and individual responsibility is critical.  See also “A” above

Interest Rates—record low short-term interest rates are found throughout the global community. Pushing such rates higher in 2010 and 2011 to remove excess monetary stimulus will be most necessary…and challenging

Jobs—painful and pervasive job declines have hurt both the U.S. and global economies during the past 18 months. A return to modest job creation late this year, or early in 2010, is on many wish lists

Knowledge—and the Ability to Think—the key to individual success in an increasingly sophisticated economy.  Ongoing education and training are now lifelong realities for many to be successful. Average annual earnings of a college graduate versus a high school graduate today?  Roughly 80%-90% higher 

Lending—various indicators suggest the U.S. and global economies are approaching more “normal” lending activity at more “normal” interest rates.  Still, too many high-quality borrowers can’t get the credit they need

Mortgage Activity—good news?  Thirty-year conventional fixed-rate mortgages averaged 4.82% during the past four weeks (source: Freddie Mac), near the lowest rates on record. Bad news?  Jumbo mortgage rates are still too high

National Debt—our gross national debt now exceeds $10.7 trillion, with at least $3 trillion of additional debt to be added in 2010 and 2011 alone.  Budget deficits averaging nearly $1 trillion annually after 2011 are simply too much

Obama—the President will likely face rising opposition from more conservative members of his own party during the next 18 months to “slow down” a bit. Everything on his aggressive agenda doesn’t have to be done NOW

Politics—childish and boorish behavior on both sides of the aisle in Washington is ridiculous…and all too typical.  Is cooperation really that difficult? Unfortunately, both sides have also taken Pork Barrel Spending to a new art form

Quarterly Economic Growth—forecasting economists still see a 2.0% real (after inflation) annual rate of GDP decline in the current quarter, versus the 6.2% average real annual rate of decline during the two prior quarters.  Most forecasts still see slightly positive GDP growth in the third quarter!

Retirement—the term will take on new meaning in coming decades as more and more people “bridge the gap” (work two or three days a week) between working full-time and moving into full retirement. Millions of retirement-age Baby Boomers will prefer to keep one foot in the workplace for a long time to come

Stocks—don’t look now, but the stock market just staged its most impressive eight-week rally in 75 years.  Why?  The stock market is typically “looking” 6-9 months ahead, and sees a return to modest economic growth

Taxes—boosting capital gains, dividend, and income tax rates on the top 5% of income earners could backfire in coming years.  Like it or not, these are the people who create jobs and invest. The Administration’s focus on “income redistribution” rather than on providing “incentives for U.S. economic growth” is troubling

Unemployment—likely to approach 10.0% before the end of the year, after averaging 5.8% in 2008 and 4.6% during both 2006 and 2007. Joblessness will stay too high…for too long

Visitors (Foreign)—will be coming in big numbers in summer months, especially from Asia and Europe. They spend aggressively! Be nice, be kind, and invite them back

Wall Street—simply stated…I remain bullish on stocks

Xports—have declined during the past year, tied to global recession. U.S. imports have fallen even further, helping to reduce our monthly trade imbalance with the world

Youth—my parents “came of age” with Pearl Harbor…my peers with Kennedy’s assassination and Vietnam. For millions of Generations X and Y, September 11 will be forever etched into their consciousness

Zeal—Charisma…Passion…Inspiration. Whether you like Obama or not, his greatest strength is to inspire people, especially the young. A leader in the mold of Kennedy and Reagan would come in real handy these days

Historically high housing affordability and low mortgage interest rates, combined with buyer opportunities in the distressed sales market, have increased home sales in many areas of the country.

“There has never been a better time to buy,” said National Association of Realtors® Chief Economist Lawrence Yun, who presented NAR’s economic outlook today at the Economic Issues and Residential Real Estate Business Trends Forum. Yun commented on a convergence of favorable buying conditions while emphasizing how important it is for home buyers to stay within their budgets.

“Housing affordability is at an all-time high, mortgage rates are historically low, and interest rates are the lowest they’ve been since the days of Eisenhower,” said Yun.

The forum was part of the weeklong Realtors® Midyear Legislative Meetings & Trade Expo. During a national real estate summit here earlier in the week, Shaun Donovan, U.S. Secretary of the Department of Housing and Urban Development, announced that the Federal Housing Administration is going to permit its lenders to allow qualified home buyers to use the $8,000 tax credit as a downpayment.

“Now that buyers will be able to use the $8,000 tax credit as a downpayment, we should see additional buyers enter the market,” said Yun.

While he doesn’t anticipate an immediate pickup in the coming months, Yun believes early summer will be a critical indicator of how home buyers are responding to the $8,000 tax credit. “The home buying process takes time,” said Yun. “This summer will gauge the success of the first-time home buyer tax credit.”

Evidence of recovery is already demonstrated in California, where home sales are rising much faster than anticipated; some areas in the state are seeing a 70 to 80 percent increase in sales. Yun attributes this extraordinary surge to buyers who may have been sitting on the fence but are now taking advantage of the great opportunities for fear of being left out of current deals in the market.

According to Yun, many first-time buyers are attracted to deeply discounted and distressed home prices. Nationally, about half of all recent transactions have been distressed sales. Fifteen to 20 percent have been short sales and 30 to 35 percent have been foreclosures. Yun says while these statistics are unfortunate the situation along with current home buying incentives have created an impressive window of opportunity for potential home buyers.

“The stimulus and falling inventory levels will help stabilize prices,” said Yun. “My projection is home sales will be 10 to 20 percent higher the second half of this year than last year and we will come out of this recession in 2010.”

Shaun Donovan, secretary of the U.S. Department of Housing and Urban Development, said that the
Federal Housing Administration is going to permit its lenders to allow homeowners to use the $8,000 tax credit as a downpayment.

Donovan’s remarks came in an address to several thousand Realtors^® gathered this morning at The Real Estate Summit: Advancing the U.S. Economy, a special daylong session at the Realtors^® Midyear Legislative Meetings & Trade Expo here.

Secretary Donovan said that important changes, which the National Association of Realtors^® has been calling for, will help consumers purchase a home. “We all want to enable FHA consumers to access the home buyer tax credit funds when they close on their home loans so that the cash can be used as a downpayment,” Donovan said. According to Donovan, the FHA’s approved lenders will be permitted to “monetize” the tax credit through short-term bridge loans. This will allow eligible home buyers to access the funds immediately at the closing table.

Donovan said the Obama administration plans to further stabilize the housing market. “I do think we have some early signs hat the market overall is stabilizing,” said Donovan. “Since January we’ve seen both home sales moving up and down around a relatively stable number and we are seeing the first signs that the rapid decline in home prices is starting to abate.”

NAR President Charles McMillan, a broker with Coldwell Banker Residential Brokerage in Dallas-Fort Worth, said, “As the leading advocate for housing issues and homeownership, NAR continues to take a leadership role in promoting ideas for improving our economy by stabilizing the housing and real estate markets. Today we have the best of the best to begin a dialogue, develop solutions and initiate action toward real estate and economic recovery.”

The morning session included a panel discussion that was moderated by CNBC’s Ron Insana. The 13 panelists and Realtors^® in attendance examined cutting-edge solutions necessary to promote and preserve homeownership and real estate development, stimulate the economy, and protect the nation’s taxpayers. They also shared their ideas on what the role and responsibility of the federal government is in the revitalization effort.

The list of distinguished panelists include Dr. Martin Feldstein, professor of Economics from Harvard University; Dr. Barry Bluestone, professor of Political Economy from Northeastern University; John Taylor, CEO of the National Community Reinvestment Coalition; Maria Kong, president of the National Association of Real Estate Brokers; and Sarah Rosen Wartell, executive vice president for the Center for American Progress.

“Right now the Federal Reserve is the market,” said Jay Brinkman, chief economist for the Mortgage Bankers Association. “What will be the effect when the Fed stops buying?” Brinkman explained that an exit strategy must be planned for the long-term; the federal government cannot continue to support the mortgage markets indefinitely.

“We must make sure FHA and the GSEs are supported,” added the Wharton School’s Susan Wachter.

“We are thrilled that so many high-caliber individuals were able to join us today at this important meeting to promote stability in the housing market and the U.S. economy,” McMillan said. “We look forward to an ongoing dialogue and action toward this goal, during our midyear meetings this week and beyond.”

The Girdwood Board of Supervisors will soon be advertising the availability of a seat.  We will select a candidate and forward our selection to the Mayor and recommend appointment.  The seat is a two-year commitment.  This is a great way to serve the community and better understand the inner workings of small town government.