Homeownership Makes $ense

Bring on the buyers! At last, the housing market is beginning to make sense again. The ownership line is finally crossing over the rental line on the great Homeownership graph.
It is now more expensive to rent than to buy a home in 72% of major metropolitan areas across the US, according to the Trulia Rent vs. Buy Index released Monday.

This is due to rising demand for rentals and falling home prices combined with low interest rates.

Pete Flint, chief executive and co-founder of Trulia says: "Since the start of the Great Recession, many former homeowners have flooded the rental market? Following the principles of supply and demand, renting has become relatively more expensive than buying in most markets."

The index compared the median list price and rent paid for a two-bedroom home in 50 cities. It then assigned a price-to-rent ration to each city with 15 signifying a buyer's market and 21 or more signifying a renter's market. The space between the two numbers signifies a balanced market.

The cost to rent includes rent and insurance. The cost of ownership includes mortgage principal and interest, closing costs, property taxes, hazard insurance and any homeowner association dues.

Not surprising, the most affordable markets are Las Vegas and Miami where the price-to-rent ration is 6 and where the foreclosure rates have topped the charts. Las Vegas was atop the foreclosures list in Q3 with one in every 25 homes was in foreclosure.
The index reported that homeownership was cheaper in the metro areas of San Francisco, Seattle, New York and Kansas City, MO, all of whom had price-to-rent ratios over 21.

Other metros like Oakland, Sacramento, Los Angeles, Miami and Phoenix are experiencing elevated rates of unemployment or foreclosures and close economic centers with projected job growth are still more affordable to renters.

This is truly great news for the Housing Industry.

Interest Points this Week

Two things in Sunday's New York Times may prove to be extremely important—and relatively soon.

The first was Gretchen Morgenson's discussion of the report published last Thursday by the Financial Crisis Inquiry Commission. As she said, the report didn't contain any news that hasn't already been parsed carefully in the press in what Morgenson calls the press's "flood-the-zone coverage and analysis of the crisis since it erupted four years ago."

No, it isn't so much the shocking factoids the report uncovers as it is the fact that it's pretty much all there, in print, for all to see. We cannot deny the many failures of our Federal Reserve, our regulators, our politicians or our bankers.

Now, with all of the information plainly in view, you'd think we could be confident that the kind of economic crunch we're only now just beginning to emerge from could be avoidable in the future. But that isn't the message here. It is as if this report declares, "This is how the whole thing happened, and it's how it could happen again."

Distressingly, to say the least—little has been done or is being done to prevent a future economic melt-down.

Why? Because it has never been made profitable to do something truly helpful about this mess. Instead, it is still profitable to continue gambling with investor money and relying on the likelihood that the American people—like, more recently, the Irish—will take on the debt.

A student of the facts about the economic crisis cannot fail to reach these conclusions. Oddly, though, the nation as a whole seems incapable of doing something genuinely helpful about them.

Why do I write of these things in this space? Because they are like ravenous dogs nipping at our backs as we try to flee the recession into recovery. They will continue to reappear, and we must be vigilant.

The second issue reported on in The Times—oddly related to the first—is the question of how much the use of cell phones and Internet sites have made it possible for the uprising to out flank the Egyptian government. Quite simply, the Mubarak government was largely ignorant of how to use the communications technology of the day. Instead of using it to track down the places where protests would begin and the people who began them, and instead of using it to present a counter-story among the Egyptian people, the government was relatively vulnerable to the uses of the technology—even (especially?) when it tried to cut off the Internet and cell phones.

The point is that the new technology can work for both sides. It isn't, as many have argued, a new force for democracy. And that insight reinforces the importance of taking the Egyptian uprising very seriously.

In spite of appointing a vice president a couple of days ago, Mubarak—should he fall, as he most likely will—leaves not even the weakest basis for a new government. And that becomes a very serious matter when we consider that, without surveillance, the Suez Canal could become a very risky channel for oil tankers. It is, you see, the only way oil gets from its producers to Europe.
Energy experts were already talking about the possibility of $4-a-gallon gasoline this coming summer before the current chaos visited Europe, making rising oil costs an even greater likelihood.

Our interest rates could be taken lower or, at the least, held back by all of this (given the investor rush to the safe haven of Treasury securities), and our economic recovery could be greatly hurt. Remarkably soon.

by: Bill Fisher

The Best Time in History to Buy a House

Right now, is the best time in history to buy a house in America.
Today, I'll show you why… based on a few cold, hard facts.

First off, mortgage rates are lower than they've ever been in American history…

Most investors have only seen a couple decades of mortgages rates on a chart. But my friends at Global Financial Data have databases – including real estate data – that literally go back centuries.

I had dinner with the Global Financial Data team over the weekend. And they told me about their "Winans International" real estate indexes, with housing prices back to the 1800s and mortgage rates going back over a century. I had to share it with you…

Take a look at this chart of mortgage interest rates since 1900:

As you can see, current mortgage rates are the lowest in U.S. history.

When were mortgage rates even close to this low in the past? Just after World War II…

And what happened, just after World War II, when mortgage rates were this low? The greatest postwar boom in housing prices – by far.

Take a look. Mortgage rates bottomed in the mid-1950s, and house prices bottomed about the same time. Then the greatest boom in home prices in our lifetimes started.

Today we have record-low mortgage rates. And we have another thing in our favor…

Homes are more affordable than ever.

Based on the 40-year history of the Housing Affordability Index… houses are more affordable than they've ever been. Take a look…

"Affordability" takes three factors into account: home prices, your income, and mortgage rates.

Home prices have crashed. And mortgage rates are at record lows. But incomes (nationwide) haven't fallen nearly as much…

So homes are now more affordable than ever.

"Most people" out there will only tell you the bad news about housing… That's the way it goes in a bear market. People drive looking in the rearview mirror.

Meanwhile, we have some darn compelling facts out there…

Home prices have fallen by a third… and mortgage rates are the lowest in history. Therefore, U.S. homes are more affordable than they've ever been.

You can listen to "most people." Or you can choose to ignore them and stick to these facts.

Based on these facts alone, now may be one of the best times in American history – even the very best time – to buy a house.

By Dr. Steve Sjuggerud

Market Update

FNMA 30-YR 4.0%

Previous close 99.125
Opened Down 0.32bp @ 98.813

Key Economic Data:

EUR / USD 1.3672 Down 0.0010
USD / JPY 82.1630 Down 0.0870
GBP / USD 1.5861 Up 0.0044

OIL 86.41 Up 0.22
Gold 1,329.90 Down 2.40

Key Economic News:

The Mortgage Bankers Association's index of mortgage applications tumbled 12.9% last week, with significant losses in both the purchase loan index (-8.7%) and the refinancing index (-15.3%). At 172.3 (March 16, 1990 = 100), the purchase loan index is at one of the lowest readings of the post homebuyer rebate period.

10:00: New home sales for Dec...flat or up? Although sales of existing home rose sharply in December, we think little of this carried over into the market for new homes. Other forecasts tilt toward a modest increase, on balance.
Median forecast (of 79): +3.5%, ranging from -6.9% to +8.6%; last +5.5%.

10:00: CBO budget and economic update...The Congressional Budget Office releases its updated baseline estimates for the federal budget over the next ten fiscal years, extending the horizon to fiscal 2021. This report will incorporate the extension of the tax cuts enacted at year-end as well as other provisions of that act. It will not include proposals by either the administration or the GOP house leadership to freeze discretionary spending; instead, the CBO baseline generally assumes growth in line with inflation for these components of the budget pending enactment of such proposals.

14:15: FOMC statement...all agreed? We expect no policy changes and only a few modest upgrades to the assessment of current growth and inflation trends. We suspect that all 11 voting members will approve the statement, though dissents from President Plosser and Fisher cannot be ruled out.

Advice:

With new home sales expected to come in with a modest gain, and as long as we have no surprises from the CBO. I would expect the market to trade around the 99.000 mark.

Float with caution.

My position on MBS stays neutral today.

Market Update

FNMA 30-YR 4.0%

Previous close 98.810
Opened Up 0.19bp @ 99.000

Key Economic Data:

EUR / USD 1.3595 Down 0.0043
USD / JPY 82.4505 Down 0.0750
GBP / USD 1.5764 Down 0.0224

OIL 86.63 Down 1.24
Gold 1,327.50 Down 17.00

Key Economic News:

9:00: Case-Shiller home price...another significant decline. We estimate a 0.5% drop in the seasonally adjusted month-on-month measure, vs. a -0.8% expectation for the consensus. July through October featured four consecutive drops, with the last two about a percentage point each.

10:00: Conference Board's consumer confidence index...perking up? We and consensus look for a slight improvement in the December reading of consumer confidence (to 53.5 and 54 respectively), from 52.5 reading in November. Historically the responses on the job market have been fairly well correlated with the unemployment rate, so they will particularly interesting given the notable improvement in the unemployment rate in December.

10:00: FHFA home price index...This conventional mortgage home price index (a narrower focus than the Case-Shiller report) is expected to be flat in December after a surprising 0.7% increase in November.

10:00: Richmond Fed survey...another regional manufacturing survey, this one canvassing both manufacturing and service-sector firms. The consensus forecast (for the manufacturing portion of the report) looks for strength to continue, with a reading of 22 expected vs 25 for the previous report.

17:00: ABC consumer comfort index...still in the doldrums. After setting a two-year high of -40 two weeks ago, this index slipped back to -43 last week, echoing weakness in other measures of confidence such as the mild setback reported for the Reuters/Michigan survey for early January.

21:00: President Obama delivers his State of the Union Address to Congress. The President is expected to focus mostly on economic issues, and a specific emphasis on tax reform-and in particular, corporate tax reform-and the need to balance near term increases in federal investment with medium term spending cuts. If the speech follows the usual pattern, it is likely to focus on concepts than specifics, so few detailed proposals should be expected, particularly in the area like corporate tax reform which is at an early stage of debate and in any case doesn't lend itself to a nationally televised address to Congress. On spending cuts, specifying a target is possible, though here the President may lack incentive to do so, given that the House of Representatives will pass a resolution today intended to bring spending down to 2008, far greater than the President is likely to support. The President does not look likely to make major new proposals on entitlement reform; the recent health reform law is still in the process of being implemented, complicating new proposals in that area, while reports indicate that he will not endorse his fiscal commission's proposal to raise the Social Security retirement age, as some had speculated late last week.

Advice:

With Housing expected to come in weaker, but Consumer confidence expected higher. Today will probably trade in a narrow range.

I would float today.

Homeownership Makes $ense

Bring on the buyers! At last, the housing market is beginning to make sense again. The ownership line is finally crossing over the rental line on the great Homeownership graph.
It is now more expensive to rent than to buy a home in 72% of major metropolitan areas across the US, according to the Trulia Rent vs. Buy Index released Monday.

This is due to rising demand for rentals and falling home prices combined with low interest rates.

Pete Flint, chief executive and co-founder of Trulia says: "Since the start of the Great Recession, many former homeowners have flooded the rental market? Following the principles of supply and demand, renting has become relatively more expensive than buying in most markets."

The index compared the median list price and rent paid for a two-bedroom home in 50 cities. It then assigned a price-to-rent ration to each city with 15 signifying a buyer's market and 21 or more signifying a renter's market. The space between the two numbers signifies a balanced market.

The cost to rent includes rent and insurance. The cost of ownership includes mortgage principal and interest, closing costs, property taxes, hazard insurance and any homeowner association dues.

Not surprising, the most affordable markets are Las Vegas and Miami where the price-to-rent ration is 6 and where the foreclosure rates have topped the charts. Las Vegas was atop the foreclosures list in Q3 with one in every 25 homes was in foreclosure.

The index reported that homeownership was cheaper in the metro areas of San Francisco, Seattle, New York and Kansas City, MO, all of whom had price-to-rent ratios over 21.

Other metros like Oakland, Sacramento, Los Angeles, Miami and Phoenix are experiencing elevated rates of unemployment or foreclosures and close economic centers with projected job growth are still more affordable to renters.

This is truly great news for the Housing Industry.

But I say not so fast. Where are the jobs? Less people are also in a position to buy a home. Not to mention the millions of foreclosures that haven't come onto the market yet. This will most likely keep the inventory high and still drive prices down further, but how much? And if they is the case, we will need to see interest rates remain low if any major impact could be expected. It will be interesting to see what the Fed does and how this will all play out. But those who can afford to buy, you should take advantage of this situation while all the factors are still in your favor.

This week...

The Lumpy Rising Path

Other than providing a lift to stock and bond market values, the past holiday-shortened four-day week gave scant insight into market trends. It appears, perhaps, that the current trend is not to have a trend.

There were the pleasing green shoots, though—hints of improvement in the overall economy and the real estate market itself. The former basked in the pleasure of seeing the Index of Leading Indicators climb by a full percentage point in December—reinforcing the strong 1.1% gain in November. The Conference Board, which compiles these figures, cautioned that the economic growth ahead—based on the current economic activity measured by a so-called "coincidence index"—will likely be uneven (to use their word). Yes…and what else is new?

What's new, in this observer's view, is that the improvement in the Leading Indicators looks quite good for two months in a row and, though the path may continue to be lumpy in the coming months, we can imagine—if not actually plan for—an improving economy six months from now.

And there are a few more relevant details involved. The strongest of the Leading Indicators, unusually, was the number of permits taken out last month to build new real estate structures. Now, the pleasant 16.7% overall jump in the number of permits (5.5% for single-family residences) was the most significant factor in the rising Index of Leading Indicators. Its size may have resulted in part from a rush among builders to get permits before new fees and codes are in place, but it is still a very strong advance. (Its strength was not reflected in the housing starts figures for the same time period—largely, it seems, because poor weather stalled a great many construction starts across the nation.)

The National Association of Realtors reported a 12.3% rise in completed sales of existing homes—and this offered a validation of the earlier Pending Home Sales Index reports from October and November that had suggested completed sales should increase by December. (Even the satisfying 12.3% rise in the number of sales failed to meet year-prior sales levels, though, falling 2.9% behind them.)

Also pleasing was the week's report on the prior week's new claims for unemployment insurance, which fell by 37,000 from two weeks ago to 404,000. While this decline does suggest the unemployment picture may be improving at last—though the jury is still out on this one—we really won't have a truly improving jobs situation until that number declines to about 300,000…just as we won't be able to say our employment picture is truly brightening until the economy is consistently adding about 200,000 jobs a month.

Current economic indicators, though, seem to suggest that we will see these goals reached—and, one would suspect, surpassed. Not soon, but the improvements are distant sparks on the horizon (or the smallest of green shoots in our still-weedy economic garden).

Most likely, in the bigger picture, interest rates will in the main continue to dance in place, rising very gradually, unless we run afoul of an unexpectedly bad piece of economic news…a small European nation defaulting, perhaps, or any number of other possibilities. The trend, weak and lumpy though it may be, is upward, in any case. Good time for wise home buyers and homeowners to finish their purchases and refis.