Real Estate Market Commentary - July 2010
by Peter L. Zachary, MAI, MRICS
I'm sorry I have not written a commentary for May & June. The reason is a combination of me receiving more appraisal business and there being little to write about.
In my April commentary I said that the Standard and Poors Case-Shiller Home Price Indicies indicated that housing prices have stabilized. However, on June 23rd, 2010 there was an article in the N.Y. Post which headlined "Housing Spike Feared" That article stated "The housing market may be on the verge of taking another plunge that could weaken the broader economic recovery. Sales of previously occupied homes dipped in May, even though buyers could receive government tax credits. And nearly a third of those sales were from foreclosures or other distressed properties. That means home prices could soon be heading down after stabilizing over the past year. Last months sales fell 2.2 percent from the previous month to a seasonally adjusted annual rate of 5.66 million, the National Association of Realtors said. Analysts who had expected sales to rise expressed concern that the real estate market could tumble once the benefit of the federal tax incentives is gone entirely, starting next month. The report is a "worrisome sign for what will occur in July and thereafter when the effect of the tax credit is behind us" said Joshua Shapiro chief US economist at MFR Inc., an economic consulting firm in New York. Still most economists don't expect the housing market to be weak enough to pull the economy back into recession. They anticipate that home sales will dip over the summer, then start growing by fall."
On July 2nd, 2010 the Daily News had an article "Rebound in Doubt-Awful home sales rise as new jobless claims spread fear."
"A SLEW of dismal economic reports yesterday raised fears that the recovery is fizzling. Plunging home sales and disappointing unemployment numbers kept the market in a downward mode for the sixth trading day in a row. The bad news seemed to come from all fronts leaving little room for comfort. The number of buyers who signed contracts to purchase homes tumbled 30% in May, the National Association of Realtors said. New claims for jobless benefits jumped by 13,000 to a seasonally adjusted 472,000, the Labor Department said. The four-week average rose to 466,500 its highest level since March. "We find the level and direction in jobless claims somewhat troubling," said John Ryding, and economist at RDQ Economics. "The increase is likely to feed double-dip fears." As jobless claims grow and benefits shrink, Americans have less money to spend and the economy can't grow fast enough to create new jobs. In more tough news, construction spending declined 0.2% in May, as residential building fell, the Commerce Department said yesterday. Both the housing market and the construction industry were affected by the expiration of the government incentives to buy homes. Buyers had until April 30th to sign sales contracts and qualify for tax credits."
Well I guess someone in Washington was reading the newspaper because the US Senate signed off to extend the $8000 tax credit until Sept 30th, 2010. This stimulus will continue to fuel the first time home buyer. This tax credit is basically their down payment since most people are obtaining FHA loans which only require 2-5% down.
The country is still in a dismal situation. The July 3rd, 2010 issues of the Wall Street Journal and the New York Times had lead front page articles entitled "Is Job Picture Darkens – Payrolls Shrink for The First Time This Year as Census Work Winds Down" and "US Regrets Job Growth Lagged in Private Sector," respectively.
The Wall Street Journal reported:
"The Economy shed jobs in June as meager private sector hiring failed to make up for the end of thousands of temporary census work jobs, the latest signal that an already-slow recovery might be shifting into an even lower gear. The unemployment rate declined to 9.5% from 9.7% in May, but not because more jobs were available. Instead, 652,000 workers dropped out of the labor force, meaning they weren't counted as unemployed and looking for work. "The biggest problem is we're getting economic growth but it's less than the people had expected," said John Silvia, a Wells Fargo Securities economist. Some economists are downwardly revising forecasts for the second half of the year. Those at UBS Securities LLC on Friday estimated the economy would grow at a 2.5% annual rate in the second half of the year, compared with the 3% growth rate they previously expected. That kind of growth typically isn't enough to absorb new workforce entrants and bring down the jobless rate. Weak growth could become a big problem for U.S Officials, who have few obvious solutions for nagging unemployment."
The New York Times Reported:
"The train that is the nation's economic recovery has slowed noticeably, unable to generate enough jobs in the last who months to keep pace with the population growth, much less reduce the vast number of unemployed Americans. The United States added just 83,000 private sector jobs in June according to the monthly statistical snapshot released by the Labor Department. The unemployment rate declined to 9.5 percent, from 9.7 percent in May, but that was largely illusory decline as 652,000 Americans left the work force. With the economy slowing – housing sales plummeted, while earnings and hours worked ticked downward last month- the stakes grow larger, economically and politically. "We may have seen the best of employment for some time," said Paul Kasriel, chief economist at Northern Trust. "In general the economy is downshifting, maybe to stall speed, or just above stall." "Obviously, it was a disappointing report," said Bernard Baumohl, chief global economist at the Economic Outlook Group. "And it comes on top of a whole lot of other economic indicators that painted a bleak picture for the country." Mr. Baumohl predicted, as others did, that this jobs report would add fuel to the fiery debate between deficit hawks and pump-primers in Washington. He favored government intervention, but he tends toward the view that it no longer makes as much difference. "Government spending prevented the U.S. economy from tipping into a depression," he said. "But beyond that, the government can not, short of war get private companies to increase hiring if they don't want to. "Make no mistake - we are headed in the right direction" Mr. Obama told reporters before boarding Air Force One to fly to West Virginia for the funeral of Senator Robert C. Byrd. "We're not headed there fast enough for a lot of Americans. We're not headed there fast enough for me either." Indeed, the economy needs to add about 130,000 jobs each month just to keep pace with the new workers entering the market. The labor pool is packed with 15 million Americans looking for work, and state and local government cut another 10,000 jobs in June, cuts likely to accelerate this summer.
The weeks leading up to Fridays report offered a grim rat-a-tat-tat of statistics pointing to a slowing economy. Auto sales fell, housing sales plunged and unemployment claims rose to a peak higher than is normal for an economic recovery. "This economic recovery does not have enough momentum to sustain on its own without government help," said Sun Won Sohn, an economist at California State University, Channel Islands, and a former chief economist at Wells Fargo. "Businesses are reluctant to hire for fear of a double-dip recession. Without jobs, the economy can't grow, limiting job growth and spending." The national economy looks like a slack muscle. Prices and wages are dormant or falling, banks are holding tight to credit, consumers appear fatigued and the stock market is tumbling, and 3.2 million workers are losing their unemployment benefits, because Congress turned down President Obama and declined to authorize an extension. Paul Krugman, the economist and New York Times Columnist, warned recently of the risk of another Great Depression. Many economists disagree with that view saying the sluggishness will end this fall or winter. Others however, join Mr. Krugman in warning that stagnation could loose another wolf: deflation. "In the winter of 2009, I said the risks are for inflation, not deflation," Mr. Kasriel noted. "In the summer of 2010, I think the risks are now tilted toward deflation. We run the risk of entering a really bad environment."
Do you remember how I closed my January 2008 Commentary. I said "When I was a young man, a little bird landed on my shoulder and said "Don't worry, things could get worse" Well they are worse.
More to come next month.
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