"IF YOU BUILD IT...THEY WILL COME."

And while that line from the movie Field of Dreams may have referred to a baseball field, there are some small signs that it could perhaps refer to the housing market once again before too long.

The housing market continues to show signs of stabilization, and although home prices are not about to spike higher, the decline certainly seems to have subsided. Existing Home Sales came in better than expectations, reaching their highest level in two years, as you can see in the chart below.

-----------------------
Chart: Existing Home Sales in July

And while the inventory of unsold homes remains lofty, it was reported at its best level in a year. In addition, while Housing Starts and Building Permits both came in slightly below expectations, they did rise in July - another sign of stabilization in the housing market. New Home Sales data will come out this Wednesday, so indeed we will soon find out if home buyers are coming out to buy those new built homes. With home loan rates still at exceptionally low levels - it presents a great opportunity to buy. Do let me know if you or one of your friends, family, neighbors or coworkers would benefit from learning more about buying a home in today's market.

On the wholesale inflation front, the Labor Department reported that the Producer Price Index (PPI) fell more than expected. However, the Core PPI - which strips out volatile food and energy prices - was inline with expectations. In the past year the Overall PPI has dropped by a record -6.8%...this going back to 1947, when data was first collected on PPI. This decrease in wholesale prices is certainly reflective of the recession, but also points to the power of the cost reductions through technology and productivity gains.

Remember, inflation is the arch enemy of Bonds and home loan rates. While it's good news that inflation is not currently an issue, with an unprecedented amount of government spending, no one really knows what the full impact will be down the road. This will be something to watch for in the weeks and months ahead.

The job market also continues to be something to watch. Initial Jobless Claims were reported at 576,000, which was a bit higher than expected, particularly after a string of better-than-expected reports recently. Claims readings will need to be in the low 400K's before the Unemployment Rate can stabilize and start to improve.so we have a ways to go.

Although not all the news of the week was necessarily positive, Stocks found ways to take a ride higher, finishing last week on the plus side and at the highest levels so far this year. The Dow surged ahead by 155 points closing at 9,505, the S&P gained 18 points to 1,026 while the Nasdaq rose 31 points ending at 2,020. But Bonds and home loan rates were in turn under pressure, and found it hard to maintain any positive momentum. And with more Treasury auctions scheduled for next week - which have not been overly friendly for Bonds and home loan rates - the pressure could increase.

Surprise, your lifes changing!

Here we go again; I was able to put a house into escrow for the third time. Ugh. Appraisal killed the deal last time. Let's hope it comes together this time, as I've spent a record amount of time on this, for a deal that should be a no brainer. Because of the economy and the real estate disaster, new laws have made some simple things difficult for everyone. Oh well, it is what it is.

Interesting thing happened yesterday with Lili. After watching another season of So You Think You Can Dance and America's Best Dance Crew, all of which she goes crazy over, she let me know she no longer wants to do dance class but go back to competition cheer. Huh? I thought she'd be all fired up for dance to start up again, but no she got a bug in her and was all on fire for cheer.

She did all kinds of research online she found a bunch of places between Santa Rosa and Vacaville she wanted to check out. We went back and forth about it all day, me mostly trying to tell her how unlikely it will be that we could do something like this right now between time and expenses. It's difficult when you have five kids and no money to spread the opportunities around. However, Lili has been focused on competition cheer (or the like) for most of her life. None of the others have shown much desire for activities other than to do what someone else is doing for the sake of playing with others. This gives me reason to feel maybe this is the one thing she should get a shot at. I don't know where it could go, but I do want to teach the kids to follow their dreams and this appears to be her dream.

After half a day of negotiation and research, she talked me into checking out a place in Petaluma. We went and I have to admit I was impressed. This is no school cheer team. This is the stuff you see on ESPN. It still seemed unlikely she could get in as their training season starts in April and goes year round, according to their website. It turned out they only started actual rehearsals last week and felt like Lili could catch up. They sounded like they wanted her, and she certainly wants to join. This would be the beginning of many schedule and lifestyle changes for the family. Are we up for it? Where are we gonna find the money? Will the schedule work with all we have going on now? Not sure, but this is what Denise and I talked about after we finally got the kids to bed. Still not sure, but I think we're going to give it a shot.

This year will Cosette and Gracie will be in Girls On The Run, a cross country style running group at school. Cosette and Lili did it last year and it was great, and more than enough extra activity. Paris is still not interested in much of anything nor is Asher, so I think we have everyone covered for another year.

Band is going good. Music is getting...I don't know. I should be getting better as it seems I have the opportunity but I'm not spending enough time with it. Not as much as I'd like for sure. It'll be better once school starts. Real estate still feels like a crap shoot. I've been able to spend most of the summer with the kids but now that school is starting I'll be able to focus more on real estate and take on more business.

I'm thinking about going back to school. Thinking. I do think I'll speak with a school counselor and see what they have to say.

"ENERGY AND PERSISTENCE CONQUER ALL THINGS." Benjamin Franklin.

And indeed, Bonds and home loan rates definitely showed some serious energy and persistence this week, despite some serious headwinds, including additional supply flooding the market from this week's big Treasury auctions.

The Treasury unloaded an enormous supply of paper onto the markets this week...and remember, anytime there is more supply than demand, it means prices will naturally decline. And when Bonds are concerned, when prices decline, home loan rates go up. The heavy supply hitting the market caused some wild volatility for rates midweek, but overall home loan rates managed to find some improvement by the end of the week. However, it won't be long before another enormous supply of Treasuries comes on the market. In just two weeks, we'll be looking at a fresh round of auctions...and the size of those auctions will be announced on August 5th. This announcement date of August 5th, and the following week's auction dates of the 11th, 12th and 13th will probably have high volatility and provide a headwind for Bonds. It used to be that the dates of economic news would be circled on the calendar as the ones to watch for greater movement in Bond prices...but right now, the supply issue has become so important that it now may be the most dominant current factor in Bond pricing and home loan rates.

In other news, Advanced Gross Domestic Product (GDP) for the 2nd Quarter came in better than expected, while the 1st Quarter GDP was revised lower. GDP measures the total market value of all final goods and services produced in a country in a given year. Overall, GDP has fallen four quarters in a row for the first time since government records started in 1947. The report also showed consumer spending is down, as consumer savings increased to the highest level since 1998.

-----------------------
Chart: Gross Domestic Product

However, there are continuing signs that the economy is stabilizing. First, the widely looked at Case/Shiller Home Price Index for May showed that home price declines in the 20 largest US cities appear to be moderating. This most recent report was the best reading in nearly twelve months, and the first month-over-month improvement in three years. Combining this report with the last few months improved Existing and New Home Sales Reports gives us reason to be more optimistic on housing, and a reason to feel that home prices are nearing a bottom for most of the country.

THIS MAY PRESENT A GREAT TIME TO PURCHASE A HOME, BUT BE AWARE THAT INFLATION WILL DEFINITELY PLAY A BIG ROLE IN THE DIRECTION OF HOME LOAN RATES...TO LEARN MORE, CHECK OUT THIS WEEK'S MORTGAGE MARKET VIEW.

Go Back to School...For Free!

Go Back to School...For Free!

As unemployment rises, many adults are heading back to the classroom to retool their skills or learn about new industries. Here are some great tips for getting that education for free.

Scholarships...

Many scholarships don't have age limits, which makes anyone eligible to apply. Check out www.Fastweb.com and www.SuperCollege.com to search for available scholarships.

Professional and Trade Organizations...

Local and national professional and trade organizations often offer grants and scholarships. For instance, The San Diego Foundation (http://www.sdfoundation.org/grant/) has several scholarships for adults. Begin by doing an Internet search for your particular locale and specialty. You can also contact your local Chamber of Commerce to see if they have any information on local grants and scholarships.

Colleges and Universities...

Many schools offer scholarships created especially for adults who are returning to school. Check a school's individual Web site or contact the admissions office for details.

The Government...

Individual states may also provide grants to help people attend re-training programs that they sponsor. Information and links can be found at www.careeronestop.org. In addition, the Obama administration has launched www.opportunity.gov to help unemployed adults return to college. The site includes information on a variety of federal student aid programs.

Employers...

A large number of employers still offer tuition assistance, especially if you can show how the educational program will help your job performance. For adults who want to return to school while they are still working, this is another avenue to consider.

The Bottom Line...

With a little research and a little effort, returning to school may be a whole lot easier...and a whole lot cheaper...than you think!

Look who's getting fancy with the graphs.....

IT'S THE THOUGHT THAT COUNTS...OR IS IT? As we look back at last week, think about this for starters - the housing industry received some welcome good news, as Existing Home Sales came in better than anticipated, and marking the third straight month that Existing Home Sales have increased. And perhaps even better, the supply of unsold homes on the market dropped from the prior reading of 9.8 months down to 9.4 months - which is the best level seen in over a year. With home loan rates still at low levels and homes priced to sell - this is a great time for potential homebuyers to stop thinking, and go ahead and take some action.

Despite that bright spot of news, last week's Consumer Sentiment report - which measures consumers' attitudes and expectations concerning both present and future economic conditions - showed that consumers still think the economy has a ways to go, as the report did come in a bit weaker than anticipated. According to the report last week, Consumer Sentiment came in at 66 for the month of July, down from June's reading of 70.8. Take a look at the chart below for an interesting historical perspective on this report.

-----------------------
Chart: Consumer Sentiment (University of Michigan)

And one of the major reasons for the decline in Consumer Sentiment was ongoing concern over unemployment - and last week, Initial Jobless Claims reportedly rose by 554,000. While this number was high, it was essentially in-line with expectations of 557,000.

The big news that many headlines featured was the number of Continuing Claims, which fell from 6.31 million the prior week to 6.22 million. And although this drop was reported as positive news, we need to remember that a large number of people are still unable to find jobs, but are no longer being counted in Continuing Claims because their unemployment benefits have expired. The bottom line is that it will be hard for the economy to really turn higher with momentum until the labor market starts to turn around.

Stocks had a good week, with the Dow closing above 9,000 on Thursday for the first time since January 6th, as well as finishing the week with its strongest two-week span for blue chips since 2000. Since Stocks moving higher can drain money away from Bonds, the rally in Stocks - combined with the announcement of next week's Treasury's auction of $115 Billion in Notes - put selling pressure on Bonds toward the end of the week. Despite some volatile mid-week action, home loan rates closed out the week near the level where they had begun the week.

After a heavy dose of corporate earnings reports for the past few weeks, the week ahead will hold quite a few economic reports for traders to chew on. This week starts off with a report on New Home Sales, which is expected to rise modestly from June's reading of 342,000 to 355,000. Particularly following last week's decent Existing Home Sales Report - this will be one to watch closely. Production and manufacturing will also be big headlines in the news this week. Durable Goods Orders, which is considered a leading indicator of manufacturing activity, could move the market mid-week - while Gross Domestic Product (GDP), which measures the total production and consumption of goods and services in the US, is due at the end of the week. The GDP read is expected to come in at -1.5% for the second quarter, which would mark an improvement over the previous quarter's reading of -5.5%. The Chicago Purchasing Managers Index is also due out at the end of the week, and although this report only surveys 200 purchasing managers in the Chicago area, it's used by traders to help predict the more important national Institute of Supply Managers Report, which is a leading indicator of economic health. The Employment Cost Index rounds out the week, which gives an indication of total labor costs - and it has the potential to move the markets if it doesn't come in close to last quarter's reading of 0.3%. What industry experts are really looking for in this report are wage trends that indicate wage inflation and price pressures...and given the continued weakness in the labor market combined with fears of future inflation, you can bet Traders will be keyed in on this report. Finally, the markets may be impacted by the Treasury Department's auction of $115 Billion in Notes this week. This auction was just announced last week and will be held in addition to the $90 Billion worth of T-Bills that are usually auctioned on a weekly basis. Just the announcement of the auction weighed on the entire Bond market last week, and could continue to be a factor this week depending on how well the additional supply hitting the market is received. Remember: Weak economic news normally causes money to flow out of Stocks and into Bonds, helping Bonds and home loan rates improve, while strong economic news normally has the opposite result. As you can see in the chart below, Mortgage Bonds traded higher early last week, but were pushed lower last Thursday after the Treasury announced a record $115 Billion in auctions. Chart: Fannie Mae 4.5% Mortgage Bond (Friday Jul 24, 2009)

INFLATION, ALL WE NEVER WANTED...!

Or so the Go-Go's song "Vacation - All I Ever Wanted" could have been re-written this week, as whispers and glimmers of future inflation as well as some positive economic news roiled the Bond market. Overall, home loan rates worsened by about .25% across the board.

Inflation at both the wholesale and consumer level came in hotter than expected via the Producer Price Index (PPI) and Consumer Price Index (CPI) reports, the latter shown in the chart below. The Consumer Price Index (CPI) rose by more than expected, and was the biggest increase in a year, mostly due to higher gasoline prices.

However, a look back over the past year shows a drop in overall CPI of 1.4%...why is this? It was a year ago that a barrel of oil was $147, and today that barrel stands at $60, up from the $30 range seen earlier this year. But even when stripping out food and energy, the most recent Core CPI rose 0.2%, higher than the 0.1% anticipated - and year-over-year, Core CPI prices were up 1.7% after rising 1.8% in the 12 months ended in May. On the wholesale side, even excluding volatile food and fuel prices, Core PPI rose quite a bit more than anticipated as well. And remember, inflation is bad for Bonds and home loan rates. If this trend continues, it could have a big impact on rates later this year.

Bay Area Home Sales Rise Again

The number of homes sold in the Bay Area in April was higher than a year ago for the eighth month in a row while the median price fell 41.3 percent to $304,000 as bargainpriced foreclosures continue to dominate the market.

While the median prices is down significantly from a year ago, it edged up slightly on a month-to-month basis for the first time in almost two years, said the report released Thursday by MDA DataQuick Information Systems.

In April, a total of 7,139 new and resale houses and condominiums closed escrow in the Bay Area, a 12.9 percent increase from March and a 13.1 percent gain from March 2008. The 13.1 percent year-to-year gain for home sales is significantly smaller than the 29.1 percent year-toyear gain reported for March home sales.

Last month's median price was 4.8 percent higher than in March, the first time there was a month-to-month gain since October 2007, when the median price increased 1
percent from September 2007.

From March to February and from March to April, the median sales price reflected a 1.7 percent drop, compared to an average month-to-month decline of almost 5 percent in the 12 months ending in January 2009.

"When you see units up and prices going up it points toward stabilization and it's very encouraging," said Rick Turley, president of Coldwell Banker Residential Brokerage in the Bay Area.

A lower concentration of discounted foreclosure resales helps explain why the median sales price has begun to stabilize, the DataQuick report said.

That said, Turley and other real estate observers expect more foreclosures to come onto the market in the coming months now that temporary foreclosure moratoriums have ended. More foreclosures could drag down median prices, which is the point at which half of homes sell for more and half sell for less.

In April, 47.4 percent of existing home sales in the Bay Area involved properties that had been foreclosed upon at some point in the last 12 months, compared to 50.2 percent in March and 52 percent in February.

Turley pointed out that the recent slowdown in foreclosure sales is likely the result of foreclosure moratoriums that were in place until the end of March. Now that the moratoriums have been lifted, expect to see more foreclosed properties to be put on the market, he said.

"We will see more. They are being released more. There was a buildup," he said.

As far as April home sales that closed, Turley said the low-end market is the strongest in the Bay Area.

"We are seeing that the lower-end market is really on fire," he said. "Multiple offers are being made on the low-end of the market due to lots of well-priced distressed properties and historically low interest rates."

As far as higher-priced properties go, Turley said he is seeing pending sales activity for homes in wealthy areas of the Peninsula such as Portola Valley, Atherton and Hillsborough. In the East Bay, Orinda, Danville and Montclair are also seeing pending sales activity for high end properties.

"For the past few months we've seen faint but growing signs that would normally suggest many markets are nearing price stabilization. But we'll need to see those vital signs continue to strengthen into the fall. Job losses and historically high foreclosures levels continue to pose serious threats to housing stability," DataQuick President John Walsh said in a statement.

Inventory levels are tightening up in markets such as Brentwood, Livermore, Walnut Creek and Pleasant Hill, where the median sales price is in the range of $400,000 to $500,000, said Jeff Sposito, president of J.Rockcliff Realtors, an East Bay real estate brokerage. Inventory levels are a measure of the time it would take for homes to be sold in a particular area.

Back in November, inventory levels in those cities ranged from 12 to 14 months whereas now they are in the four to five-month range, Sposito said.

Steve Dhillon, a Realtor with the Fremont office of RE Realty Experts, said inventory levels are down compared to few months ago. Lower inventory helps explains recent price stabilization, he said.

In January, there were 130 foreclosed homes for sale in the Tri-City area of Fremont, Union City, Newark. In April, that number was 85.

"Inventory is low and what I'm also finding is more buyers are entering the market" to take advantage of lower interest rates, low home prices and tax credits for buying homes, he said. "In a year or so, people will look back and think that was a great time to buy," Dhillon said.

By Eve Mitchell Staff Writer Bay Area News Group
Source: Contra Costa Times, May 21, 2009