Archive for the ‘Real Estate’ Category

U.S. Economy: Housing Slump Fails to Quell Inflation

Wednesday, February 20th, 2008

By Courtney Schlisserman and Bob Willis

Feb. 20 (Bloomberg) — The two-year housing slump pushing the U.S. economy toward a recession hasn’t alleviated inflation pressures, reports today showed.

Consumer prices rose 0.4 percent from December, with costs excluding food and energy climbing 0.3 percent, the most since June 2006, the Labor Department said. Builders started work on 1.012 million homes at an annual rate in January, close to a 16- year low, the Commerce Department reported in Washington.

The figures mean Federal Reserve Chairman Ben S. Bernanke will need to consider raising interest rates as soon as the economy stabilizes. Bernanke, who last week said the Fed is prepared to keep lowering interest rates, warned that faster inflation would “greatly complicate” the central bank’s job.

“What this means is that they don’t have as much comfort to play with rates,” Ellen Zentner, an economist at Bank of Tokyo-Mitsubishi UFJ Ltd. in New York, said on Bloomberg Television, referring to Fed officials. “Once the U.S. economy looks like it’s started to stabilize, they’re going to have to jump right back in to that, raising rates back up to neutral.”

Treasury securities slumped after the consumer price report, while recouping most of the losses later. Ten-year note yields increased to 3.93 percent at 9:54 a.m. in New York from 3.90 percent late yesterday. The Standard & Poor’s 500 stock index lost 0.8 percent, to 1,337.97.

Lowest Since 1991

Building permits, an indication of future construction, fell 3 percent to a 1.048 million rate, the lowest level since November 1991, today’s Commerce report showed.

Housing starts were projected to rise to a 1.01 million pace from an originally reported 1.006 million rate in December, according to the median forecast in a Bloomberg survey of 72 economists. Permits were forecast to drop to a 1.05 million rate, from 1.068 million in December.

“We don’t think housing has hit bottom yet,” said Douglas Porter, deputy chief economist at BMO Capital Markets in Toronto. “Until we get some stabilization in sales or even a mild improvement, it’s likely that construction will continue to weaken.”

A jump in food and energy costs, rents and clothing prices led the consumer-price index higher last month. Economists had forecast a 0.3 percent increase, with the so-called core rate gaining 0.2 percent, Bloomberg surveys showed.

Today’s price report “certainly showed a broad-based intensification of inflation pressures,” said Dean Maki, chief U.S. economist at Barclays Capital Inc. in New York. While the Fed currently “is looking at growth,” inflation “will come back on the radar screen” when economic data improve, he said.

Food Costs

Food prices, which account for about one-seventh of the CPI, rose 0.7 percent, matching the biggest gain since May 2004, after a 0.1 percent increase in January. Energy prices last month increased 0.7 percent, after rising 1.7 percent the previous month.

“Even if energy prices remain flat, the continued rise in retail food prices will damp consumer spending growth,” JPMorgan Chase & Co. economists wrote in a note to clients last week.

Fuel costs were up 4.5 percent. Apparel prices rose 0.4 percent after a 0.1 percent increase in December.

The consumer price index is the government’s broadest gauge of costs for goods and services. Almost 60 percent of the CPI covers prices that consumers pay for services ranging from medical visits to airline fares and movie tickets.

Bond Yields

Some bond investors are concerned that the Fed’s interest- rate cuts, totaling 2.25 percentage points since September, threaten to stoke inflation. The reductions came at a time of rising energy and commodity costs, and a falling U.S. dollar.

“The trend is showing elevated levels of inflation above where the Fed would like it to be,” said Don Alexander, director of fixed income in New York at Citigroup Global Wealth Management, which oversees about $1.3 trillion in assets. “You’re not rewarded for taking the risk of” investing in longer-dated Treasuries, he said.

A measure of price expectations derived from the gap in yields between 10-year notes and 10-year Treasuries linked to inflation rose as high as 2.39 percent today, the highest since November, from a low of 2.20 percent last month.

Still, Fed Chairman Ben S. Bernanke and other officials this month indicated that price expectations have yet to reach a level triggering their concern. The Fed chief told lawmakers Feb. 14 that “inflation expectations appear to have remained reasonably well anchored.”

Rate Cuts

Citing a worsening economic outlook, the central bank last month lowered its benchmark interest rate by 1.25 percentage point during two meetings, the fastest rate reduction since the federal funds rate became the main policy tool around 1990.

Compared with a year earlier, consumer prices rose 4.3 percent, after a 4.1 percent gain in December. The core rate was up 2.5 percent from January 2007, the biggest jump since March 2007, compared with a 2.4 percent increase the previous month.

Rents, which make up almost 40 percent of the core CPI, rose 0.3 percent.

Slower economic growth may help damp price pressures.

Economic growth slowed to a 0.6 percent pace in the fourth quarter and the economy lost jobs in January for the first time in more than four years, according to government figures.

Wal-Mart Discounts

Wal-Mart Stores Inc., the world’s largest retailer, said yesterday that fourth-quarter profit rose more than analysts had forecast after it stepped up U.S. holiday discounts and boosted sales in Asia and Latin America. Before the holiday season the company made price cuts on 20 percent more items. Last month, it marked down groceries, medicine, fitness equipment and electronics as much as 30 percent.

The government said Feb. 15 that prices of goods imported into the U.S. jumped 1.7 percent in January, pushed up by higher costs for energy and food. The producer price index is scheduled to be released Feb. 26.

PPI and CPI have some differences in timing that may cause discrepancies. In calculating wholesale prices, the government asks survey participants to report costs as of the Tuesday of the week that includes the 13th. Consumer prices are based on average costs over the entire month.

To contact the reporter on this story: Courtney Schlisserman in Washington

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Home prices in steepest quarterly drop

Thursday, February 14th, 2008

Realtors say prices fell faster and in more places over last part of 2007.

BY Les Christie, staff writer
February 14 2008: 11:01 AM EST
NEW YORK ( — Home prices continued their plunge during the last three months of 2007, setting a real estate trade group’s record for the biggest-ever quarterly drop. .

The national median price drop of 5.8%, to $206,200 from $219,300, was the steepest ever recorded by the National Association of Realtors (NAR), which has been compiling the report since 1979.

NAR officials blamed the liquidity squeeze that began last summer for much of the drop. Home buyers had trouble obtaining mortgage financing, especially for more expensive properties.

“The continuing crunch in the jumbo loan market that began in August has disproportionately reduced the number of transactions in higher price ranges,” said Lawrence Yun, NAR’s chief economist, in a statement.

Fewer expensive homes were sold, bringing down median prices.

“California, south Florida, D.C., many of the high-cost markets are reflecting that,” said Walter Molony, a spokesman for NAR.

Each of the four U.S. regions recorded losses compared with the fourth quarter of 2006. The West took the worst hit, at 8.7%. Prices dropped 4.8% in the Northeast, 5.4% in the South and 3.2% in the Midwest.

In Lansing, Mich., square in the Midwest Rust Belt, prices plunged 18.8% to $109,600. In Sacramento, Calif., prices fell 18.5% to $197,600, and in both Jackson, Miss and Riverside, Calif. prices dropped 16.8%.

Seventy-three of the nation’s 151 real estate markets recorded price gains. Cumberland, Md., led the winners with an increase of 19% to $116,600.

The least expensive single-family-home market in the nation got even cheaper, as prices in Youngstown, Ohio, dropped 9.3% to $72,600. The most expensive market, San Jose, Calif., got dearer, with prices up 11.2% to $845,300.

Condo prices fared better. The fourth-quarter median condo price of $221,100 was little changed from the $221,200 a year earlier.

But some areas, mostly Sun Belt cities, took significant price hits.

Cape Coral, Fla., condo prices were down 26% compared with the last three months of 2006 to $202,300, and Tucson, Ariz., prices dropped 19.8% to $128,000. Atlanta prices fell 12% to $141,100, and Las Vegas was off 10.3% to $178,500.

Bismarck, N.D., condo prices recorded the largest gain at 20.8% to $125,000, with New Orleans second at a 17.8% gain to $173,300.

Last year, fourth-quarter home prices were 2.7% lower from the year before.

“The healthiest housing markets today generally are moderately priced and are experiencing job growth and often population growth, which in turn is supporting strong price growth,” said NAR’s Yun. “Most of the weakest markets have either experienced both job and population losses, or they are experiencing corrections following a prolonged period of rapid price growth.”

Many markets have also been affected by soaring foreclosure rates. Large numbers of houses for sale, many repossessed from borrowers, sit empty, depressing prices in cities from coast to coast - but most notably in economically distressed Midwest industrial towns and some once-booming Sun Belt cities.

NAR numbers are arrived at by examining the prices of all homes sold during the period. The median price is the one in which half of all homes sold for more and half for less.

Using median prices rather than mean - or average - prices reduces the impact of the sale of very expensive homes, which would raise mean prices disproportionately.

The NAR take on price trends, usually an optimistic one, was that recent steps taken in Washington would lead to improved conditions later this year.

“Higher limits for FHA loans, which go into effect March 14, will be a big help to first-time buyers in high-cost markets,” said NAR President Richard Gaylord.

“Higher limits for conventional loans purchased by Freddie Mac and Fannie Mae will take a bit longer,” he said. “When they become available, high-income, creditworthy borrowers in high-cost areas will have access to affordable and safer financing, and that will help unleash pent-up demand.”

But other industry insiders are predicting harder times ahead. A Merrill Lynch report in January forecast peak-to-trough price declines of 15% in 2008 and another 10% in 2009 before markets begin to recover.

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Pending home sales fall 1.5% in December

Thursday, February 7th, 2008

Pending home sales fall 1.5% in December

By Ruth Mantell, MarketWatch

Last update: 10:41 a.m. EST Feb. 7, 2008
WASHINGTON (MarketWatch) — Sales contracts on previously owned U.S. homes fell 1.5% in December, the National Association of Realtors reported Thursday, and economists expect further declines in sales and pricing.
The pending home sales index, based on contracts signed but not closed in December, was down 24.2% from the prior year’s period. The index, which is considered a leading indicator of existing home sales, had also declined in November, after gains in September and October.

In November, pending home sales declined about 3% from the prior month, compared with the previous estimate of a 2.6% decline. Ian Shepherdson, chief U.S. economist with High Frequency Economics, said it’s not likely that the index has hit bottom. “Consumer confidence has weakened further, the rate of fall of home prices has accelerated and the labor market has deteriorated, so we are of the view that the outlook for housing continues to darken,” Shepherdson said.

Sales activity is expected to remain soft through the first half of the year despite low mortgage interest rates, according to NAR. Joseph Brusuelas, U.S. chief economist with IDEAglobal, concurred, adding that he expects the report supports his outlook “that the housing sector has entered a last, long painful leg down before things begin to stabilize later this year at the earliest.”

The aggregate existing-home price is expected to drop 1.2% this year, according to NAR.
“Areas with a high prevalence of subprime lending will continue to feel downward price pressure,” Yun said. “Where builders have cut construction sharply, and in most areas with improving affordability conditions, we’ll generally see moderately higher home prices.”

Higher loan limits for conventional mortgages could spur gains in home sales and prices, according to NAR.
“If higher limits are enacted very quickly, we’ll see a faster and more meaningful recovery by expanding safe, affordable financing in high-cost areas — that, in turn, would help to stimulate overall economic activity,” Yun said.
By region, December’s pending home sales index fell 1.7% in the Northeast, 3.0% in the South and 3.1% in the West. In the Midwest, the monthly index rose 3.4%. Compared with a year ago, the index is down across the country.
NAR sees new-home sales are likely declining 17.7% this year, and then rising 7.6% in 2009. “Builders will further lower new home construction throughout this year and into 2009 to bring inventory under control,” Yun said.

Ruth Mantell is a MarketWatch reporter based in Washington.