Cornerstone Group Realty - Riverton and Lander, Wyoming in Fremont County - Real Estate, Houses for Sale, Homes for Sale

March 28, 2011

MARKET RECAP

Bearish pundits – those chatterers who seek notoriety by accentuating the negative – had reason to strut this past week because the news on housing was, for the most part, to their liking.

Existing sales for February fell 10 percent to an annual rate of 4.88 million units. Supply could be a concern going forward. The inventory of existing homes for sale rose 3.5 percent to 3.48 million units, 8.6 months of supply at the current sales rate and a 14.6 percent increase over January's 7.5 months.

Supply issues raise pricing issues. On that front, the median sales price of existing homes fell 1.1 percent in February to $156,100, while the average price dropped 1.4 percent to $203,000. Year-over-year, the decline for the median price is deepening, at minus 5.2 percent, but holding steady at minus 2.7 percent for the average price.

New home sales tumbled 16.9 percent in February to an annual rate of 250,000 units, which was a mild shock, considering the consensus estimate was expecting 295,000 units. Fewer sales mean more inventory. Supply rose to 8.9 months at the current sales rate. As for prices, the median price fell 13.9 percent to $202,100, a drop that sweeps the year-over-year rate into the negative column at minus 8.9 percent.

Following the off-putting news on home sales, it was only natural that a few analysts were willing to fan the pessimistic flames. MacroMarkets lead the charge, stating that a double-dip in housing could arrive this year. "Overall, the sentiment among our expert panel regarding the U.S. housing market outlook continues to deteriorate," said Robert Shiller, co-founder of MacroMarkets. "Now they are expecting only a weak recovery, and even that is not until 2013."

Now is as good a time as any to take a cynical shot at “expert” panels. Let's not forget that the experts were wildly off the mark on new and existing home sales for February. Why did so few ignore the obvious – the weather? Sales were actually flat in the West and the South. Sales in the Northeast declined 57 percent and 27 percent in the Midwest – two regions hit particularly hard by cold and snow.

February's data were a downer, but we expect to see improvement in March based on the developing upward trend in purchase applications. Lower mortgage rates, which have eased by 25 basis points over the past four weeks, have stimulated interest. And let's not overlook an improving economy. Fewer Americans are claiming unemployment benefits. Since July, the four-week moving average has dropped from 500,000 to 380,000. This trend will boost expectations for accelerating payroll and economic growth. That's good news for housing's outlook.

Economic Indicator	Release Date and Time	Consensus Estimate	Analysis
Personal Income & Outlays (February)	Mon., March 28, 8:30 am, et	Income: 0.5% (Increase) Outlays: 0.5% (Increase)	Moderately Important. Real income is growing, while spending is more reflective of price inflation.
Pending Home Sales Index (February)	Mon., March 28, 10:00 am, et	2.0% (Decrease)	Important. Inclement weather is expected to weigh on the index.
Case-Shiller Home Price Index (January)	Tues., March 29, 9:00 am, et	0.4% (Decrease)	Moderately Important. A decrease in national prices is likely based on pricing data from other sources.
Consumer Confidence (March)	Tues., March 29, 10:00 am, et	64.5 Index	Moderately Important. Confidence is expected to ease, but remains in a positive trend.
Mortgage Applications	Wed., March 30, 7:00 am, et	None	Important. Month-to-month strength hints at more home buying heading into spring.
Employment Situation (March)	Fri., April 1, 8:30 am, et	Unemployment Rate: 8.9% Job Growth: 200,000	Very Important. The trend in unemployment claims suggest strong job growth for February.
Construction Spending (February)	Fri., April 1, 10:00 am, et	0.9% (Increase)	Important. Nonresidential and public outlays are offsetting weakness in residential outlays.

Mortgage Rates or Home Prices?

It can be an incapacitating conundrum: weighing interest-rate movement rates against home-price movements. The trade-off can be difficult to analyze, especially for borrowers who mistakenly believe rates have always been low and will always remain so. Of course, many neophyte homebuyers are thinking along a similar line; that is, home prices are low and will stay low.

The analysis is actually straightforward, if placed in a historical context. Both mortgage rates and home prices are much closer to being at, or near, a bottom than a top when comparing today's market to markets past. Of course, it is entirely possible that a buyer could sign a contract, lock in the loan rate, then go home and read that national home prices and mortgage rates have dropped.

Market tops and bottoms are impossible to predict. The best we can do is to estimate where we are based on long-term trends and similar past economic circumstances. From this perspective, there is really no trade off. Both home prices and mortgage rates are low, so there is no conundrum and there is no reason to put off buying a home for anyone staying put for at least five years.

 

March 21, 2011

MARKET RECAP

The headline was ominous: “Housing starts drop 22.5 percent in February.” And for that matter, so were the numbers: the annualized pace of starts tumbled to 479,000 units – a 101,000 shortfall compared to the consensus forecast for 580,000 units.

However, when we delve into the facts, we find that things aren't necessarily bad. For one, January's spike in starts was way above the trend, so some reversal should have been expected. Second, winter months are notoriously volatile, and starts were hampered by severe weather in many parts of the country.

Homebuilders are still struggling, to be sure, but they might not be struggling as badly as the headlines suggest. In fact, homebuilders are actually feeling more upbeat these days. The March housing market index posted at 17, the best posting since the buyer-stimulus tax credits expired last April.

It is also worth noting that the housing market index is skewed by the small builder makeup of the National Association of Home Builders. With smaller builders feeling the heat more acutely than their larger brethren, and with their heavy inclusion in this index, the housing market index has a natural bias to accentuate the negative. Over recent months, many executives of the larger, publicly traded builders have offered news of better ordering trends than is reflected by the housing market index.

The recent trend in mortgage rates could further lift homebuilder sentiment. Investors have been pouring money into Treasury securities and mortgage-backed bonds in recent weeks because of Middle-East unrest and the Japan disaster. That means yields on Treasuries and mortgage-backed bonds have dropped, and so too have mortgage rates. Quotes below 5 percent for the 30-year fixed-rate loan were the norm across the nation this past week.

We don't expect it to last, though. Events in the Middle East will pass and fears over Japan 's ability to extract itself from its predicament will abate. The bigger issue, at least for mortgage rates, is price inflation. On that front, the embers are not only stoked but also starting to flame. Producer price inflation is red hot, posting a 1.6 percent increase in February. Year-over-year producer prices have jumped to a worrisome rate of 5.8 percent. On the consumer side, prices jumped 0.5 percent in February, following a 0.4 percent boost in January. Year-over-year, overall consumer-price inflation has increased 2.2 percent.

Energy costs have been the main driver of price increases, and they can be volatile. Nevertheless, a recovering economy tends to increase sustained-energy demand, so we doubt we will see much improvement in energy prices through the summer months. Bottom line: now is a very good time to take advantage of the lull in mortgage rates.

Warren Revisited

A couple weeks ago, we mentioned Warren Buffett and his investments in housing. We think it is worthwhile to revisit Mr. Buffett, because many of his views on housing and the mortgage market are in line with what we've been saying for the past year.

On the issues of FICO scores and employment, Mr. Buffett writes, “Your banker will tell you that people with such scores are generally regarded as questionable credits. Nevertheless, our [mortgage] portfolio has performed well during conditions of stress. Our borrowers get in trouble when they lose their jobs, have health problems, get divorced, etc.”

On home ownership, Mr. Buffett offers the following, “Home ownership makes sense for most Americans, particularly at today’s lower prices and bargain interest rates. All things considered, the third best investment I ever made was the purchase of my home...For the $31,500 I paid for our house, my family and I gained 52 years of terrific memories with more to come.”

Admittedly, it might be self serving for us to selectively pick quotes that affirm our convictions, though there are at least two tangential insights worth pondering: First, mortgage markets would be more efficient and more borrower-friendly if they relied less on mechanical scoring and more on broker and banker acumen (which is why we look forward to more private-investor participation). Second, home ownership is far from dead like so many pundits were saying last year. In fact, we would be surprised not to see a home-buying Renaissance emerge in the near future.

March 7, 2011

MARKET RECAP

There wasn't much new to report on housing this week, which is probably a good thing. Most of the news has been tepid at best lately, making it seem as though we are stuck in some sort of holding pattern.

The pending home sales index is the latest example. The index fell 2.8 percent in January to 88.9, which suggests sluggish existing home sales in February and March. This really isn't news; February was a sluggish month for sales in many parts of the country, but most of us knew that. Weather for the first two months of the year was unusually snowy and cold across the nation. To state the obvious: no one house-hunts in a snow storm.

Inventory and regressing prices continue to be popular laments, but ones we think are overblown. Both are an outgrowth of a sluggish employment market, but that's improving. In fact, based on February employment numbers, the economy and the employment market might be improving better than most economists had forecast. Private-sector employers reported that payrolls rose by 192,000 last month, dropping the official unemployment rate to 8.9 percent, the first time in nearly two years it has been below 9 percent.
For the past five months, the trend in new hires has been volatile, but up. We expect hiring to continue to accelerate in coming months. In the early stages of a recovery, payroll gains tend to surge to 250,000 per month compared to the mature stage, where monthly payrolls gains of 150,000 are the norm.

More people working mean more robust markets all around. Jobs are natural curatives. Many of the problems of bloated housing inventory and foreclosures aren’t about negative equity; they're about paying the bills. Work enables us to do that. Someone might not like the idea of his house being worth less than the balance on the mortgage, but the mortgage will be paid if the job allows it.

The mortgage market will likely feel an immediate impact from rising employment. Economic recoveries tend to be inflationary, especially when interest rates are set as low as they are today. Inflation will likely become a greater concern heading into the prime buying season.

The Treasury Department could also be a factor in the mortgage market. Its initiatives to move the market away from government-sponsored agencies Fannie Mae and Freddie Mac to private markets are gaining support among politicians. We think the initiatives are good for the stability and long-term viability of both the housing and mortgage markets. Just as important, private markets are more flexible and better able to develop products that meet consumer needs. The downside is that private markets are also more expensive.

Economic Indicator	Release Date and Time	Consensus Estimate	Analysis
Consumer Credit (January)	Mon., March 7, 3:00 pm, et	$3.9 Billion (Increase)	Moderately Important. Revolving credit use continues to rise with consumer confidence.
Mortgage Applications	Wed., March 9, 7:00 am, et	None	Important. The volatility in purchase applications points to more volatility in housing.
Wholesale Trade (January)	Wed., March 9, 10:00 am, et	0.8% (Increase)	Moderately Important. Businesses are adding inventory in anticipation of stronger economic growth.
International Trade (January)	Thurs., March 10, 8:30 am, et	$41.1 Billion (Deficit)	Important. The deficit is expanding on higher oil prices, further raising the likelihood of price inflation.
Retail Sales (February)	Fri., March 11, 8:30 am, et	0.4% (Increase)	Moderately Important. Rising consumer prices are slowing the uptrend in sales.
Consumer Sentiment (March)	Fri., March 11, 9:55 am, et	77 Index	Important. Sentiment is at a three-year high, suggesting the economy is progressing better than the official numbers state.

 

What Warren Says About Housing

It's that time of the year when über-investor Warren Buffett releases his annual letter to shareholders of Berkshire Hathaway. The letter is, of course, of interest to Berkshire shareholders, but it's also of interest to just about anyone who invests. After all, Warren Buffett is the greatest investor of the past 50 years.

Buffett isn't right all the time, but he's right enough, which is why our interest was piqued by his comments on housing. Says Buffett, "A housing recovery will probably begin within a year or so. In any event, it is certain to occur at some point."

It's an understatement, and one not particularly prescient, but it's one worth noting anyway, because Buffett has been investing in Berkshire 's housing-related properties. Acme Brick acquired the leading manufacturer of brick in Alabama at a cost of $50 million; Johns Manville is building a $55 million roofing membrane plant in Ohio ; Shaw Industries (carpeting) has planned $200 million worth of spending on its U.S.-based plant and equipment. Berkshire is also a big investor in USG Corp., the Sheetrock Company, and it owns Clayton Homes .

It's nice to say a housing recovery is on the way, but it's even nicer to see someone of Warren Buffett's standing backing the recovery with his money.