http://www.nationalmortgagenews.com/pdfs/MTJanuary2012.pdf

The December Employment Report will be released Friday, Feb.3 by the Labor Department. It is expected that employers added 163,000 new jobs last month after creating 200,000 new positions in November. The Unemployment Rate is expected to remain at a stubbornly high level of 8.4%, but it has been trending down recently. 

The economy will need sustained job and wage growth in order for consumer spending to pick up. Consumer spending accounts for about 70% of the economy.

Real Estate Industry News

2012 Looks Better for Real Estate

One fun part of ringing in the New Year is placing bets on what it will bring.  Collecting New Year predictions isn’t as silly as it sounds; it gives knowledgeable players a chance to share what they know.

For those of us trying to gauge whether to sell, buy or rent in 2012, and for those real estate professional who serve the public, every scrap of wisdom helps.  Here are predictions from a few trusted voices in real estate:

Karl Case

Case, an economist and professor emeritus at Wellesley College, is one of the nation’s smartest observers of the real-estate market.  The S&P/Case-Shiller Index, invented by Karl Case and Robert Shiller, “is pretty much the Dow Jones industrial average of real estate,” says The New York Times.  “The 20-city composite index of home prices hit bottom in March 2011 and has improved modestly since,” writes the Times in a year-end look at the economy.

Judging from the index that bears his name, the future holds nothing but more grimness for real-estate values in the U.S.  ”Nasty Case-Shiller shows home prices barely off their crisis lows” is how Forbes put it last week.

“But Mr. Case points out that the data masks some signs of eventual recovery,” says the Times.  Here’s Case’s assessment:

“Household formation is increasing and the vacancy rate is dropping,” he said.  ”Housing starts are at a 60-year low, and they’ve been there for three years.  That’s unheard-of.  We’re starting to see some signs of an increase in value.”

Diana Olick

CNBC’s real-estate reporter is no economist.  Olick’s academic preparation consists of a BA in comparative literature and a minor in Soviet studies.  But she’s smart, her “Realty Check” blog keeps a sharp eye on real estate and she talks with the best analysts in the business.  Among her predictions:

Home prices finally hit bottom by late 2012 but not before dropping 5% more.

Plenty more homeowners will default on their mortgages, keeping a huge backlog of foreclosures looming over the market.  (Of course a monkey with a Magic 8 Ball could have predicted this.)

Rents rise as demand for rentals grows.

Government makes no dramatic efforts to solve the housing mess.

Bloomberg

“Even the worst-hit markets will begin to see improvement by 2012,” write Bloomberg real-estate reporters Prashant Gopal and Diana Holden.  They, too, say prices will drop more before a turnaround begins.

Bloomberg makes predictions for home values in metro areas and each of the 50 states, including median home values predicted for 2012 and those in 2008, when the bust began, plus the percent of change expected.

Three examples:

Arizona, Metro: Phoenix-Mesa-Scottsdale

What a Home Will Be Worth in 2012: $141,859

Q4 2008 price: $169,000

Projected price change by MSA: -16.1%

Projected price change by state: -17.2%

Michigan, Metro: Warren-Troy-Farmington Hills

What a Home Will Be Worth in 2012: $157,469

Q4 2008 price: $149,000

Projected price change by MSA: +5.7%

Projected price change by state: +2.0%

New York, Metro: New York-White Plains-Wayne (N.Y.-N.J.)

What a Home Will Be Worth in 2012: $343,937

Q4 2008 price: $440,000

Projected price change by MSA: -21.8%

Projected price change by state: -15.6%

Kiplinger

The caption beneath the headline sums up Kiplinger’s outlook: “The bleeding is just about over.  But don’t expect a speedy recovery.”

Writes the magazine: The median home price in the U.S. has plunged nearly 40% in a little over five years, but the worst is definitely over:  The market has finally wrung out the last excess valuations born of the housing bubble.

Assuming no further shocks to the economy (no safe assumption, given the fragility of the world economy), U.S. real estate will slowly work its way out of the red, Kiplinger predicts.

Among experts interviewed, Mark Zandi, chief economist at Moody’s, says prices will drop no more than 3% to 5% in 2012, “setting the stage for gains in 2013.”

FoxBusiness

FoxBusiness interviewed John Lonski, chief economist at Moody’s Capital Markets Group, who sounds bullish on housing: “Financially strong households that have spent money at Tiffany’s and on cars are afraid of putting money in housing as they don’t want to arrive too early,” says Lonski.  “But we could be surprised at how vigorously the ensuing upturn of home sales becomes.”

Tara-Nicholle Nelson

Inman News columnist Tara-Nicholle Nelson is an attorney and a real-estate agent, giving her a boots-on-the-ground perspective.  She predicts: Prices will recover faster in cities with thriving high-tech industries.  Among them: Silicon Valley and the San Francisco Bay Area; Austin, Texas; Massachusetts suburbs of Cambridge, Newton and Framingham; Rochester, N.Y.

“REOs and short sales will become the new normal” as banks continue to foreclose and dispose of the backlog of homes on their hands.  ”Buyers will shift from considering whether to buy a short sale to understanding that they must be educated and prepared to do a deal with a seller, a bank (to buy an REO) or a hybrid of the two (to buy a short sale) to access the full selection of homes on the market.”

By: Marilyn Lewis, www.money.msn.com

Money Market Recap and Forecast

MMRecap for Jan. 30

Greece is the word ¦ again.  Ongoing talks regarding Greece’s debt crisis have thus far failed to solve the problem, and time is running out.  Greece needs bailout funds from the European Union and the International Money Fund by March 20.  This is when Greece’s payment of 14 billion euros (approximately $18 billion in U.S. dollars) comes due.  The ongoing drama that reignited Monday put investors on edge, and stocks as well as bonds lost value.  The yield on the 10-year note rose 4 bps to 2.07%; yields and prices, of course, move in opposite directions.

Tuesday was another day of wait and see.  There was no economic news to influence trading and no announcements from Europe to tilt the scales one way or the other.  The markets didn’t move much, and many economists believe Treasury yields will remain low for the foreseeable future.  The 10-year note closed at 2.06%.

The Federal Open Market Committee (FOMC) confirmed that outlook after its meeting on Wednesday.  Chairman Ben Bernanke said that although the economy is improving it has a long way to go.  To aid an economic rebound he said the fed funds rate will remain at the historic low of 0%-0.25% until late 2014 — approximately 15 months longer than was originally proposed.

The committee also noted that: the unemployment rate should end the year between 8.2% and 8.5% (it was at an unrevised 8.5% in December 2011); the GDP should come in between 2.2% and 2.7% for 2012; the inflation target for this year is 2.0% and the door is still open on providing additional stimulus via QE3, if necessary.

The thinking behind these moves is to provide consumers with lower interest rates on big ticket items such as automobiles, mortgage rates and student loans.  This would also affect credit cards that base their rates on “rate + prime.”  The prime rate, currently at 3.25%, follows the fed funds rate, either up or down.

Wall Street liked the news, and the Dow closed at its highest level since May.  Bond traders liked it also, as the yield on the 10-year Treasury note dropped 13 basis points to 1.85% on early word that the fed funds rate would hold until the end of 2014.  It closed at 2.01%.

Other releases, which were totally ignored, said the Federal Housing Finance Agency house price index for November rose 1.0%.  December pending home sales, however, fell 3.5% after spiking by 7.3% in November.

Thursday was a different story.  Most of the economic news was negative, sending stocks prices and the 10-year yield down.

First-time jobless claims for the week ended Jan. 21 halted their trend downward.

Claims rose by 21,000 to 377,000, just slightly above the forecast of 375,000.  New home sales in December were another matter, however.  They slid 2.2% to an annual rate of 307,000 when analysts were expecting something closer to 325,000 units.  Year-over-year sales dove 6.2% to a record low annual rate of 302,000 units, while the median price fell 12.8% to $210,000.

Durable goods orders, expensive items expected to last three or more years, rose 3%.  Excluding autos, orders were up 2%.  And finally, the leading economic indicators rose 0.4% when a 7% hike was expected.

News from Europe was minimal, as Greek officials continue to talk to private sector creditors with the hope of reducing Greece’s debt.  As long as they continue to talk, hope exists.  But now Portugal has joined the list of endangered countries that will now have to be watched.

The economic news pushed the 10-year yield down to 1.93% at closing.

On Friday the much-anticipated report on 4^thquarter GDP was met with disappointment.  Although the economy grew at a 2.8% clip (up from a 3^rdquarter reading of 1.8%), it was lower than analysts had predicted.  Any results that come in below expectations are generally regarded as bad news.

One of the major concerns was high inventories.  Although they add to GDP, consumption growth was weak.  Consumers have to spend in order to move the economy forward.  As a result, stocks took a tumble, but the yield on the 10-year note was unchanged.

The final report, the January consumer sentiment survey compiled by Thomson Reuters/University of Michigan, rose to 75 from 74.  This was the fifth straight month of upward movement.  This survey usually impacts the markets, but on Friday Treasuries held steady until the final few minutes before closing.  The benchmark 10-year yield closed at 1.90%.  It fell 17 basis points during the week.

Mortgage applications fell during the week ended Jan. 20, according to the Mortgage Bankers Association.  Purchase apps were down 5.4%, while applications to refinance were off by 5.2%.

This week is loaded with reports, which could lead to volatility, or not.  It usually depends on whether the results exceed expectations or miss, and by how much.

Only one report is due Monday, but it ramps up from there.  Personal spending and income for December offer only one change.  Spending is expected to increase 0.1%, the same as in November.  The core rate, which is an important inflation indicator, is expected to do the same.  Income, however, could increase by 0.4%, according to analysts.  That’s a big jump from the previous 0.1% reading, but it shouldn’t be a big market mover.

The 4^thquarter employment cost index is expected to increase to 0.5% from the 3^rdquarter 0.3% move.  This generally doesn’t impact the markets, but consumer confidence for January does.  It is predicted to rise to 68.0 from December’s 64.5.

This is a big move that could impact Treasuries.  Higher confidence is believed to encourage spending, which in turn grows the economy.  The report could discourage investors from buying bonds.

Also due is the Chicago PMI index on January manufacturing conditions.  It’s expected to drop to 61.0 from the previous 62.5, which could be favorable for bonds.  The final report is the S&P Case-Shiller November housing price index for the 20 largest U.S. cities.  There are no estimates available, but it’s a good bet prices will go down.

Wednesday morning the ISM index on nationwide manufacturing conditions in January is predicted to increase to 54.5 from 53.9.  Although that’s not a big move, any increase in manufacturing is a good sign — especially when the other two indicators are not usually regarded as significant.

Construction spending in December should increase 0.2%, which is far below the previous 1.2% — but an increase nevertheless.  

Finally, ADP, the payroll company, should release the number of jobs it added to nonfarm payrolls in January.  This report is anticipated because many believe it is an indicator of jobs added on Friday’s January employment report.  A high number generally causes selling in Treasuries, but no estimate has been released.

First-time jobless claims for the week ended Jan. 21 are expected to climb to 375,000 from the previous 2008 low of 352,000.  If claims rise by 23,000, that would probably increase buying in Treasuries, as they have been declining for the past several weeks.

The day’s final report is 4^thquarter productivity and costs.  Productivity is expected to drop to -0.2% versus a 3^rdquarter gain of 2.3%.  Costs, however, should rise to -0.1% from -2.5%.  Rising costs and lower productivity sometimes hint of inflation, which might put downward pressure on Treasuries.

Friday is the big one.  The January employment report is expected to show 105,000 jobs added to nonfarm payrolls.  That’s only a hair more than half of the 200,000 jobs added in December.  It is far below the 250,000 jobs per month that economists say need to be added in order to lower the unemployment rate to a workable level.

The two reports released after that will get little attention.  The ISM index on the service sector in January should increase to 53.5 from 52.6.  No estimates are available for December factory orders, but they did rise 1.8% in November.

Money Market Recap and Forecast

MMRecap for Jan. 23

Last week was a tough one for U.S. Treasury securities.  A number of reports showed progress in many of the most troubled areas: housing, manufacturing and employment.  Good news lessens or erases the need for investors to put their cash in safe havens such as bonds.  The selling of Treasuries resulted in rising yields.  The benchmark 10-year note yield, which moves inversely to price, ended up at 2.03% last Friday.  This was its first close above 2.0% since Dec. 27.

Tuesday morning the 10-year Treasury note held the line, while stocks rose on signs of an improving global economy.  Upbeat reports on China’s economic growth and a rise in Germany’s consumer confidence sent the equity markets up.  And the NY Empire State index of January manufacturing conditions, propelled by increases in new orders and employment, leapt to13.5 from the previous 8.2.  In spite of a 60-point Dow Jones gain, the 10-year yield closed at 1.85%.

On Wednesday still more positive headlines took their toll on Treasuries.  The International Money Fund plans to increase its recovery fund up to $500 billion in order to keep a handle on Europe’s debt problems.  Wall Street liked that and the National Association of Builders’ January index.  It read 25 — its highest level since June 2007.  In addition, manufacturing rebounded in December, handily beating expectations.  Industrial production rose 0.4% versus the previous -0.3%, while capacity utilization edged up to 78.1% from 77.8%.

The producer price index (PPI) for December was less encouraging, due to hints of inflation at the manufacturing level.  Bond traders fear inflation because it robs fixed-rate assets of their value.  Although the PPI was down -0.1%, the core rate — the one the Fed watches — rose 0.3%.  That’s up from November’s 0.1% increase.  The core, which eliminates volatile food and energy costs, increased 3% in 2011.  That’s 1% higher than the Fed is comfortable with.

The benchmark 10-year Treasury yield closed at 1.90%, up five basis points from the previous day.

Although Thursday offered some good economic news, stocks remained largely unimpressed.  As expected, buying in Treasuries dried up.

First-time jobless claims for the week ended Jan. 14 fell by 50,000 to 352,000; that is the lowest level since April 19, 2008.  Continuing claims, those receiving benefits for more than one week, plunged by 215,000 from the previous week.

The December consumer price index (CPI), which looks at inflation at the retail level, found none for the second month in a row.  The CPI remained at 0.0%, while the core rate edged up 0.1%, the same as in the previous month. 

Two reports were somewhat disappointing.  Housing starts and building permits in December came in weaker than expected.  Starts were down by 18,000 to an annual rate of 657,000 units after rising by 58,000 units in November.  Building permits dipped to an annual rate of 679,000 from 680,000.  Separately, the Philly Fed index of manufacturing conditions in the mid-Atlantic region also fell short of expectations.  It rose to 7.3 from 6.8; analysts were predicting readings between 8.0 and 10.0.

Wall Street applauded Bank of America’s better-than-expected earnings report and good reports from other financial institutions.  Stocks were also pleased by a successful bond auction in Spain and ongoing conversations in Greece with the objective of solving Greece’s ongoing debt problems.  The three major stock indices closed at their highest levels since July.  The 10-year Treasury yield remained below 2%, closing at 1.97%.

The week ended with more good news from the housing sector.  The NAR reported that existing home sales rose 5% in December to an annual rate of 4.6 million units.  This third straight increase resulted in 3.6% gain in sales from one year ago.  The inventory of unsold houses shrank to a 6.2-month supply.  That’s the lowest it has been since March 2005.

The median sales price, however, continued to fall due to the large number of distressed homes on the market.  December’s median price was $166,100, down 3.9% from December 2010.

Shortly before the bond market closed, the 10-year took another hit.  Greece is expected to come to terms with bondholders sometime on Friday.  This long-awaited news would likely push the yield even higher.  The 10-year closed at 2.01% — the first time it’s been above 2.0% since Dec. 27.

There was good news from the Mortgage Bankers Association.  During the week ended Jan. 13 home purchase applications rose 10.3%, while refis jumped 26.4% from the previous week — their highest level since August 2011.

This week begins slowly, as far as economic news goes.  No reports are due Monday or Tuesday; but with the global markets regularly impacting trading in the U.S., anything could happen.

On Wednesday the Federal Open Market Committee will announce the results of its two-day meeting.  Investors will be looking for an announcement regarding further stimulus to heat up the U.S. economy.  If that doesn’t happen, Wall Street will probably be disappointed, which could spur buying in Treasuries.  The Fed will hold a press conference after the meeting; that could shed light on any new  decisions.

Also on Wednesday, pending home sales for December are due.  No estimates are available, but pending sales rose 7.3% in November — a big increase.  Another move like that could lead to selling in Treasuries.

Manufacturing and housing have been a real drag on economic growth, so positive signs in either of these areas would probably pressure bonds.  On the other hand, the Federal Housing Finance Agency will release its housing price index for November.  The previous month it fell 0.2%.  No predictions are available.

On Thursday initial jobless claims for the week ended Jan 21 will be released.  Last week the number of people applying for unemployment benefits fell significantly, helping to push the 10-year yield up by seven basis points.  There are no estimates available, but if there is another big drop in first-time jobless applications, yields should increase again.

Also due are December reports on new home sales, durable goods orders and the index of leading economic indicators.  While none of these have a big influence on trading, new home sales could weigh on Treasuries if estimates are correct.  Sales have been steadily rising and could increase to an annual rate of 328,000 units from 315,000 in November.  As recently as August, the annual rate of sales was just 296,000 units.

Durable goods orders are expected to increase 3.3%, which would be down a tad from November’s 3.8% increase.  That should not, however, affect the markets.  Separately, the index of leading indicators, which attempts to predict economic conditions over the next six to nine months, is due.  In November it rose 0.5%, but no forecasts are available.  This is not a big market mover.

On Friday, the 4^thquarter GDP is due, and it can move the markets.  Some economists are expecting a 3.0% increase, while others believe it could climb as high as 3.4% from the 3^rdquarter final of 1.8%.  If this does occur, there would likely be strong selling in the bond markets; that would boost yields significantly.

The final report, the consumer confidence survey from Thomson Reuters/University of Michigan, can also impact trading.  It has been moving up steadily over the past few months and hit 74 in the mid-January preliminary survey.  Another strong increase could push the 10-year note yield even higher.

An Article of Interest

Mend Your Neighborhood Foreclosure

A foreclosure on your block can do more than spoil the view from your window.  A foreclosed eyesore can ruin the financial health of your household and your neighborhood.  But there are things you can do now to keep a blighted property from destroying your home equity.

Be a good neighbor

Prevention makes the biggest difference, says Erynn Crowley, deputy director of the Phoenix Neighborhood Services Department.  If you know a neighbor is headed toward foreclosure, find out what you can do to help maintain the property should they move away.  Like Phoenix, many municipalities have developed resources to help neighborhoods and neighbors deal with the foreclosure crisis.

“We always encourage neighbors to talk to each other because that’s the fastest way going,” Crowley says.  ”Sometimes they aren’t aware or they thought they had a tenant who was taking care of it.”

To keep one blighted property from turning into two or more, maintain your own property.  ”Don’t get too discouraged just because you have one or two abandoned properties on the block,” says Chris Smith, director for Neighborhood Housing Services of Chicago in the city’s Roseland office.  ”If every other property on the block is in pretty good shape, chances are the foreclosed property won’t stay vacant for too long.”

Form a neighborhood watch to head off potential problems, says John Anderson, co-owner of Twin Oaks Realty Inc., in Crystal, Minn.  ”Once the pipes get stolen or the house becomes vandalized, it becomes harder to sell, and it becomes a bigger detriment to the neighborhood,” says Anderson.  And always, of course, keep the police informed if you see criminal activity.

Speak up, fast

“If neighbors see code violations like a broken window; tall, dry weeds; trash in the yard — any of those things — we recommend they report them as soon as they see them,” Crowley says.  ”You don’t want it to sit and get worse, especially if it’s a vacant property.”

Sometimes an eyesore can turn into a health or safety hazard, with vacant properties attracting squatters or becoming hot spots for illegal activity such as drug dealing.  If you suspect that a vacant or abandoned property poses such a risk, notify authorities immediately.  And the more folks you can get on your block to complain about an abandoned property, the better the chances something will get done sooner rather than later.

“Everyone on that block needs to call the authorities on the same day, within the same hour.  And if nothing happens, do the same thing again the next day,” says Smith, who says that with this tactic, at least in Chicago, it usually takes fewer than three days for police to come out and board up and secure an abandoned property.  With a single phone call, that same abandoned property could remain open for a while.

If your city doesn’t fix the problem foreclosure, Smith suggests calling a nonprofit such as NHS (Neighborhood Housing Services) that will work on your behalf to take care of problem properties in your neighborhood.

Help sell the property

To speed up the sale of the foreclosure, help find a potential buyer.  Talk up the property, and your neighborhood, to anyone you know who is looking to buy.

“The best salespersons for an abandoned property on the block are the people that live on that block,” says Smith, who often makes presentations to neighborhood groups.

If your area is particularly hard-hit by foreclosures, the eyesore on your block may already be part of a federally funded Neighborhood Stabilization Program under which municipalities buy, fix up and resell blighted properties.  Crowley says some Phoenix neighborhood groups help market NSP properties.  In the Minneapolis area, Anderson has seen neighbors banding together to buy foreclosed or NSP properties, fixing them up and reselling them.

What you shouldn’t do

Don’t waste your time playing detective, trying to figure out who owns the foreclosure nightmare on your block in an effort to get the owner to take responsibility.  Foreclosures can take months or more than a year.  It’s often difficult to pinpoint who currently holds the deed, Anderson says.

Ask your building-code department or a similar agency what you can do legally to help maintain the property, says Anderson.  In most cases, they’ll give the go-ahead to pick up trash outside the property or mow the lawn.  But be sure to get permission first.

Avoid the temptation to sneak onto the property and try to fix it up by yourself.  ”Don’t try to do anything on your own,” Smith says.  “You could actually be held liable for anything that goes wrong on that property.  You have to go through the proper channels.”

By: Rita Colorito, www.bankrate.com

Real Estate Industry News

The Home’s Changing Financial Role: It’s No Longer a Piggy Bank

Homeownership used to be the bedrock of the American dream, but the economic storm and its lasting effects have radically changed how everyone — no matter what stage of life they’re in — looks at their home.

Many potential home buyers are now hesitating, taking a closer look at their options.  ”People are starting to realize that the American dream of homeownership is not right for everyone,” Kim McGrigg, community manager at Money Management International, a non-profit consumer credit counseling service.

And those who already own homes may have hit a snag or readjusted their expectations.  Five years ago, as a young married couple, Joe and Cheryl Shaw bought a charming historic home in St. Charles, Mo.  They have a 9-month-old daughter and a 3-year-old son.  They want to have more children, but the home is too small.

Unfortunately, they paid $222,000 for the home and still owe $203,000.  Its estimated value is now only about $185,000.

“We are outgrowing the house and are ready to move on,” says Joe Shaw, 40, who is an assistant principal in the Francis Howell School District.  ”But we’re in the hole, so much so that I’m not sure that we can afford to move on.”

A hole in retirement plans

The Shaws are in better shape than homeowners who have lost their homes to foreclosure.  And many other families can no longer count on their home value as part of their retirement nest egg.

Nolan Heiter, a business systems analyst at SunTrust Bank in Richmond, Va., says that his and his wife’s retirement plan always had included their home equity.  That has to be adjusted now because the home’s value has dropped.

“Our vision had always been that we’d be able to sell the house and get enough out of it to pay cash for a smaller retirement home and have no mortgage,” says Heiter, who is now nearly 50 and doesn’t think the value will turn around before he retires.  ”We may be facing a situation where we have to use some of our retirement income to pay for a mortgage.”

Even those who can easily afford a home are rethinking their dreams.  The McMansion era may be on its way out.  Homes are shrinking: The median size of single-family homes declined from its peak of 2,268 square feet in 2006 to 2,100, according to a study based on Census Bureau 2009 statistics by the National Association of Home Builders.

At the same time, multigenerational households are making a comeback.  In 2008, a record 16.1% of the U.S. population lived in extended families, with at least two adult generations or a grandparent and at least one other generation, a Pew Research Center found.  That is up from 12% in 1980.

That increase is, in part, because many unemployed adult children are moving back home with their parents.  And large family homes are more available to them because many parents are not able to sell them and move to retirement condos.

“There may be a multigenerational household for a period of time until the financial situation changes and is on more solid ground,” says Elinor Ginzler, AARP senior vice president.  But some owners are choosing to live in an extended family.

About two years ago, when home prices were going down, Dan and Lauri Pratt sold their home in Kaysville, Utah, and bought a larger home in nearby Farmington.  It had a large walkout basement, which they have turned into a small apartment for one of their sons, who is still going to college and is married and has a baby.  ”One reason for the basement was that it would help them save some money on rent and utilities,” says Dan, 51, a construction manager.  ”And my wife is able to watch our granddaughter without the hassle of dropping her off and paying for day care.”  Pratt expects the apartment could be used again for some of their four younger children or his mother-in-law.

The risks of homeownership

Even though it’s a buyer’s market, a growing number of people are deciding to rent.  Some have no choice because they do not qualify for a mortgage, while others don’t want the perils of homeownership.  In the third quarter of 2010, 59% of renters said they were more likely to continue to rent in their next move, vs. 54% in January, a Fannie Mae study about homeownership found.

The housing crisis has shown that owning a home comes with risk.  ”Many who bought homes as investments have gotten quite burned on that,” says Eleanor Blayney, consumer advocate for Certified Financial Planner Board of Standards.

The changes are not only related to the economic crisis.  Some Americans are reinventing their homes to be more energy efficient.  Others are looking for ways to make their existing homes safe and livable.  About one-third of Americans 45 and older said they have made changes to their current home so they could stay longer, the AARP survey found.

Even when the economy improves, home buying may not return to normal.  ”We need to rethink housing in the 21st century,” Blayney says.  People should always remember that there is a potential downside as well as an upside.  And homes are not a piggy bank.  So people should not assume their home value will help pay for their children’s college education or their retirement.

“It’s a whole new ballgame,” says Sid Davis, a real estate broker and author of A Survival Guide for Buying a Home.

By: Christine Dugas, www.usatoday.com

Lousy housing market? Blame sellers

(Steven Puetzer/ Getty Images)

If it’s such a good time to be a homebuyer, as the real estate industry relentlessly tells us, why hasn’t there been a buffalo stampede to the closing table?

Most theories on the source of the market’s inertia swirl around tight lending conditions and consumer skittishness about making big financial commitments.

But maybe we’re overlooking the seller factor. Syracuse University economics professor Gary Engelhardt recently probed consumer attitudes about the real estate market and said he was surprised at the depths of the negativity expressed by sellers and would-be sellers.

In an interview, he discussed how his study, “The Great Recession and Attitudes Toward Homebuying,” concluded that the true housing market gremlin may be the record lack of enthusiasm that home sellers hold for their prospects:

Q: You combed through 30 years of consumer attitudes toward the real estate market. What did you find?

A: The study was commissioned by the Mortgage Bankers Association and its research arm, the Research Institute for Housing America. They were interested in digging deeper into why home sales aren’t stronger, because it’s a very favorable time to buy: Prices are low, and mortgage rates are low.

I was quite surprised to find that buying sentiment was so high. Even with unemployment, slow economic growth and the general economy, nearly 80 percent of Americans say this is a good time to buy a home. This pattern of positive homebuying sentiment is similar to that seen in previous recessions.

But on the sell side, it’s a completely different story. Home-selling sentiment is at an all-time low (within the period studied). From 1992 through 2005, positive home-selling sentiment fluctuated between 40 to 60 percent. Currently, only about 7 percent of consumers think now is a good time to be selling a house.

Q: So this might explain why the inventories of homes on the market have dropped precipitously; some data sources have said recently that the number of homes for sale is down 20 percent or more from one year ago. Some of this is due to sold houses coming off the market, of course, but do you think that the dried-up inventory comes from potential sellers being gun-shy?

A: Yes. They don’t believe it’s in their best economic interest to sell now. Put more simply, they feel they’re kind of stuck.

As market values have fallen, potential sellers haven’t adjusted their price expectations downward enough. There are likely reasons that they haven’t been able to sell or haven’t been trying to sell.

One is that the price they expect to get for their homes may be tied to past market values, like the price they originally paid or what a comparable property may have sold for in the past.

And then, of course, many of these sellers are underwater. Their mortgages are larger than what they could sell the house for, so they can’t adjust their minimum sales price much below the outstanding mortgage balance. They’d have to bring cash to the closing table to make up the difference.

Q: So, you say that many of them are sitting on their hands, either refusing to budge on price or just sitting it out. What’s going to happen with them eventually?

A: The people who have been sitting on their hands have been waiting and waiting and waiting, and their shadow inventory (when their homes come onto the market) is going to tamp down any upward price pressure.

If improvement in prices is your metric (for market recovery), that’s going to be much further along the timeline.

I don’t make market forecasts, but the Mortgage Bankers Association sees only very modest price movements in the next two years; prices will basically be flat.

Q: So if, as you suspect, there’s a huge number of people who finally decide the moment is right to try to sell, or they can’t wait any longer, will there be an adequate supply of buyers?

A: That’s a very good question. It depends on what segment of the market you’re looking at. If you were to say that the market will be full of smaller homes or condos that aging baby boomers would want to downsize into, I’d say the demographics are favorable for that, as we know that there will be a population bulge at older ages.

Or, if you were to tell me that there are going to be entry-level homes in markets where there are healthy immigrant populations who’d want to buy, or that there will be populations of young families that want to become homeowners for the first time, the market for those homes should be strong, demographically speaking.

But some segments of the market will not be shifting very favorably, and those are harder to pinpoint. Areas with large homes near relatively low-quality schools, not proximate to urban amenities — the ones that don’t have a lot going for them other than space — those are the ones that are likely to suffer, because the aging population doesn’t want those.

I also think that the potential for the second-home market would have to be incredibly weak until we get some broad-based recovery.

Q: What would it take to move this seller-attitude logjam?

A: The negative-equity (underwater) picture has to improve. One in five families with a mortgage is underwater. It’s an incredible drag on the market.

If you told me, well, it’s 5 percent of families that are underwater, I wouldn’t think it was that big a deal (to the economy). But when you go to 20 percent underwater, that’s a threshold where it drags the market. We’ve more than reached that.

One of four things has to happen: They’re going to have to have the income to service their mortgages (so they’re not forced to sell); there has to be a rebound in prices so that they’re no longer underwater; or they have to be willing to bring cash to the table, and I don’t think that’s going to happen. The last thing could be they just up and leave, walk away from their mortgages, and we’re seeing plenty of that.

Of the four, I guess what we would hope for is a price increase, but that’s not coming any time soon.

So we’d hope for some broad-based job growth.

We can bring down unemployment, but (it won’t help housing) if they’re jobs that are unable to service these mortgages.

http://www.chicagotribune.com/classified/realestate/sc-cons-0112-umberger-seller-sentiment-20120113,0,103174.column?page=1

Money Market Recap and Forecast

MMRecap for Jan 16

There was little action in the markets Monday.  The beginning of 4^thquarter corporate earnings season began after the closing bell.  These quarterly reports can lead to volatility in the stock indices but they generally don’t impact U.S. Treasuries.

As has been true for months, Europe’s debt problems continue to be the primary movers of U.S. stocks and bonds.  It was reported that the German chancellor and the French president said they are continuing work on a proposed pact that will require stronger budgetary restraints on eurozone countries.  It could be signed this month and go into effect in March — emphasis on “could.”

The benchmark 10-year Treasury note yield, which moves in the opposite direction of price, was unchanged at 1.96%.

Stocks rose early Tuesday due to good corporate quarterly reports, more encouraging comments from Europe regarding the debt crisis and strength in the financial sector.

The only economic news showed wholesale inventories in November rose by a less-than-expected 0.1%.  Even though it was a huge decline from October’s 1.2% increase, this indicator has little bearing on the markets.  The 10-year note yield edged up to 1.97% at close.

Stock prices waffled Wednesday morning due to (what else?) concerns about Europe’s debt problems.  This left investors with only one place to stash their money — U.S. Treasuries.  The yield on the 10-year note fell to 1.93%.

The Fed’s beige book, which looks at economic conditions in the nation’s 12 federal districts, was released in the afternoon.  It showed the economy expanded moderately in all districts, led by strong December retail sales.  Real estate, however, was down across the board.

The yield on the 10-year note fell again in the wake of a strong auction of the benchmark Treasury.  This was the first time ever that the government sold a 10-year note with a yield below 2.0%.  The yield fell to 1.90% by the time the market closed.

Successful bond auctions in Europe, held early Thursday morning, indicated that the eurozone economy might be taking baby steps toward recovery.  Pre-market data suggested a surge in stock prices.  But poor U.S. retail sales in December and an increase of 24,000 first-time jobless claims for the week ended Jan. 7 pulled stocks into negative territory.  The yield on the 10-year note edged up.

Retail sales in December rose a mere 0.1% from a revised 0.4% increase in November.  Online sales fell 0.4%.  Retail sales excluding autos fell 0.2%.  This turned out to be not the happiest of holidays for merchants.  Sales, however, were up 4.1% from one year ago.

First-time claims almost hit the key 400,000 mark again, rising to 399,000.  The Labor Department admits that there is a great deal of volatility due to seasonal hiring but said the post-holiday surge in claims should smooth out by month’s end.  Separately, business inventories in November rose by a weaker-than-expected 0.3% versus a 0.8% increase the previous month.  The inventory-to-sales ratio held at 1-to-27.

Before the markets closed, strong demand for bonds and bills from Spain and Italy bolstered confidence not only in the new leadership of those countries but in the belief that they will not default.  However, we are only two weeks into the New Year and there are many auctions to come.  The more positive look at the European situation slowed buying in U.S. Treasuries and pushed the 10-year yield up to 1.93% at close.

The European situation didn’t look so rosy Friday morning.  ”Good sources” said that Standard & Poor’s could lower the credit ratings of several European countries, excluding Germany.  Topping the list of possibilities are France (almost a sure thing) and Austria.  Investors sold stocks and piled into Treasuries.

An unexpected increase in consumer sentiment for the first half of January, as reported by Thomson Reuters/University of Michigan, didn’t slow the buying of Treasuries.  The index rose to 74.0 from 69.9 due to an improved labor market, lower gas prices and stock market gains.  This indicator is used to get a handle on consumer spending.

The other two reports, the U.S. trade balance for November and the import/export price indices for December, had no impact on trading.  The 10-year again closed at 1.85%.

Mortgage applications climbed during the week ended January 6, according to the Mortgage Bankers Association.  Purchase applications were up 8.1% and refis rose 3.3%.

This week is the third four-day week we’ve had in the last four weeks, due to Martin Luther King Jr. Day.  Although the week is short, several reports could impact the markets.

Tuesday features the NY Empire State index of manufacturing conditions in January.  No economists or analysts have offered predictions on this index, which rose to 9.5 in December.  It has been climbing lately, as the October reading was 0.61.  A big increase could provoke selling in Treasuries.

Wednesday and Thursday feature some heavy hitters.  Wednesday’s first report is the producer price index (PPI) for December, which looks for inflation in wholesale prices.  A 0.3% increase is expected, the same as the previous month.  The PPI core rate, which eliminates volatile prices on energy and food, is expected to duplicate November’s 0.1% increase.

Industrial production could rise 0.5% in December versus a -0.2% reading the previous month.  A leap like that could encourage selling in Treasuries, as manufacturing has been struggling to recover.  Capacity utilization should creep up to 78.1 from 77.8.  Separately, the homebuilder index, which reflects how confident builders are regarding January sales, is due.  After remaining steady for several months, it has been climbing one step at a time over the past four months.  In December the index hit 21.

Thursday features a host of market movers, with first-time jobless claims for the week ended January 14 up first.  If most of the post-holiday layoffs are behind us, claims should more accurately reflect what’s going on regarding job.

This will be followed by the consumer price index (CPI), which checks on inflation at the retail level.  It is expected to have risen 0.1% in December after showing no gain in November.  The core rate could increase 0.2%, the same as in the previous month.  Bond traders should be pleased with these numbers — if they are correct.  Inflation robs fixed-rate assets of their value over time.

Housing starts in December are expected to hold at an annual rate of 685,000.  This would be a victory of sorts, as starts rose by 57,000 units in November.  There is no estimate on building permits, but they, too, increased to an annual rate of 681,000 the previous month.

The Philly Fed index on January manufacturing conditions in the mid-Atlantic region is Thursday’s final report.  Although there are no estimates, this index has slowly climbed out of a deep hole.  In August 2011, the index read -30.7.  Last month it hit 10.3.  This is one of the key manufacturing indices, so if it keeps climbing it could slow buying in Treasuries.

The final report of the week is existing home sales in December.  Economists believe they will increase to an annual rate of 4.7 million units, from 4.42 million in November.  That’s an increase of 28 million units, which would likely spark selling in Treasuries and push the 10-year yield higher.