Archive for May, 2013

May 5, 2013

US Stocks surge

In a notable contrast to the springtime sell-offs of the past three years, the Dow Jones industrial average rose above 15,000 during the day, though it closed slightly below the mark, while the S&P 500 crossed the 1,600-point mark – in both cases for the first time.
The latest gains followed reports from the U.S. Labor Department showing that employers added 165,000 jobs in April and the unemployment rate fell to 7.5 per cent, its lowest level since December, 2008. The results topped consensus expectations.
Economists had been expecting far more modest job gains of 140,000, with unemployment holding steady at 7.6 per cent. Even more impressive, February and March payrolls were revised higher, by 114,000 jobs.
As good as the numbers were, they weren’t good enough to raise concerns that the U.S. Federal Reserve will ease back stimulus in the form of bond-buying, or quantitative easing (QE) – a powerful elixir that is largely credited for extending the bull market, now in its fifth year.
Andrew Grantham, an economist at CIBC World Markets, said in a note the payrolls report will reassure markets “that the U.S. economy is not as weak as it may have seemed given some of the earlier data, although it may not be strong enough on its own to see renewed talk of tapering QE.”
The S&P 500, the most widely followed market index, has now risen more than 13 per cent in the first four months of 2013, putting it on track for its best yearly performance since 2009, when stocks were in the early stages of recovering from a deep bear market.
The benchmark has powered well above the targets issued by Wall Street strategists at the start of the year. On average, strategists had seen the S&P 500 rising to 1,534 by the end of 2013 – well below the 1614.42 it closed at Friday.
The gains have come despite a lacklustre outlook for global growth. The U.S. economy expanded by just 2.5 per cent in the first three months of 2013, while China’s growth is slowing and the euro zone remains stuck in recession.
The stock market has largely ignored this sluggish backdrop and focused instead on efforts to fix it.
Earlier this week, the European Central Bank cut its key lending rate to a record low 0.5 per cent and said it was prepared to do more. Japan’s central bank has embarked upon stimulus efforts of its own, which has helped drive up the benchmark Nikkei 225 by nearly 32 per cent this year.
The recent gains by U.S. stocks come with some concerns, though. One fear is that the Federal Reserve’s QE program, which involves creating large amounts of money to purchase assets, will ultimately stoke inflation.
“No one knows if the QE experiment will ultimately prove to be successful,” said Michael Hartnett, chief investment strategist at Bank of America, in a note. “But we do know the ‘journey’ involves asset price inflation.”
The S&P 500 has not suffered so much as a 5 per cent dip since November.
The biggest decline of the year was in April, when the index fell 3.3 per cent, but recovered quickly. That modest decline arrived at a time in the year that has been a rough patch for stocks in recent years. Last year, the S&P 500 fell nearly 10 per cent between April and June. In 2011, it fell more than 19 per cent between April and October. And in 2010, it fell about 16 per cent between April and July.
With markets roaring into the start of May, this year is set to break the pattern – even as observers warn that smooth rides don’t last forever

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May 5, 2013

Equity Sales hit a new high

Equity sales hit five-year high; pending home sales post monthly gain as the housing market enters the spring buying season
LOS ANGELES (April 22) – The share of equity sales rose to their highest level in five years, while March California pending home sales climbed from the previous month, the CALIFORNIA ASSOCIATION OF REALTORS® (C.A.R.) reported today.

Pending home sales data:
C.A.R.’s Pending Home Sales Index (PHSI)* rose 14.8 percent from a revised 110.1 in February to 126.3 in March, based on signed contracts. Pending sales were down 7.5 percent from the 136.5 index recorded in March 2012. Pending home sales are forward-looking indicators of future home sales activity, providing information on the future direction of the market.
“Recent gains in home prices are increasing the market value of many underwater homes,” said C.A.R. President Don Faught. “As a result, many homes that were previously listed as short sales are now selling as equity sales, as is indicated by the five-percent drop in the share of short sales compared with last year.”
Distressed housing market data:
• The share of equity sales – or non-distressed property sales – compared with total sales rose to their highest level since February 2008, recording a 72.1 percent share in March. Equity sales made up 66.8 percent of all sales in February and about half (51.2 percent) of all sales in March 2012.
• The combined share of all distressed property sales continued to decline in March, dropping from 33.2 percent in February to 27.9 percent in March 2013. Distressed properties comprised 48.8 percent of all sales in March 2012.
• Of the distressed properties, the share of short sales was 17.3 percent in March, down from 19.8 percent in February and down from 22.6 percent a year ago. The March figure was the lowest since November 2009.
• The share of REO sales also declined to their lowest level since late 2007, falling from 12.9 percent in February to 10.2 percent in March and down from 25.9 percent in March 2012.
• Housing inventory fell in all three property types in March, with the Unsold Inventory Index for short sales falling from a revised 3.2 months in February to 2.7 months in March and REOs slipping from 2 months in February to 1.8 months in March. The index for equity sales declined from 3.8 months in February to 3 months in March.

May 5, 2013

By the numbers

By the Numbers – Real Estate Outlook 2013

5%

Housing will be the shining star of the economy in 2013

While it may not directly effect the GDP (Gross Domestic Product), the Housing Sector is significant. In 2012, the 5% gain in national home prices boosted consumer’s net worth by an estimated $1 trillion, pushing consumer confidence to a 4 year high. Rising net worth typically decreases consumers’ savings, but provides a boost to overall consumer spending. Consumer Spending accounts for 70% of the US GDP.

$40b

The Fed will significantly influence mortgage rates

We believe the Fed will keep QE3, part of its plan to spend $40 billion per month in its mortgage buying program, alive through 2013. This took the refinance volume to the highest levels in four years. Changes in the QE3 program could likely raise rates quickly, but that would also mean a much healthier broader economy with improvements in employment, consumption and consumer confidence.

49.6%

Short sales over foreclosures

Lenders have finally figured out that strategic short sales will be more prudent and profitable. California foreclosures dropped 49.6% in 2012 over 2011. Essentially, finding a quick, optimal solution by getting the loan off the books, taking a smaller loss, and being able to re-lend the capital elsewhere is a win-win for all.

30%

Cash is king
Structuring is queen

Limited inventory and high buyer demand leads to an environment filled with multiple offers and higher sales prices, but all cash offers (over 30% in 2012) still command the market. As this continues into 2013, private lending structures that provide “cash at close’ options to buyers (who could close with cash from private financing and later re-finance from a traditional lender) could become more popular, especially given that interest rates are staying extremely low for now and cash rich investors would enjoy getting a yield-bump with the security of being backed by a (high demand) asset.

3.1

Inventory will likely remain tight

Generally, a 6 Month’s Supply of Inventory (MSI) is considered a balanced market. At the peak of the crisis in 2009, California had an MSI of 17 months and now it stands at an historic low of 3 months. The luxury market will continue to see aggressive bidding and multiple offers, while investors and all-cash buyers will compete with soaring demand from first time home buyers in other markets. Inventories of new homes are near 50 year lows and the rise in demand has led to much stronger building activity, with predictions of a 25%-30% rise in single family building starts in 2013 that could bring more inventory into certain markets. In hindsight, our recent under building has been the greatest aid to housing’s recovery.