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 Monday, November 03, 2008

Last Week in the News

On Monday, October 27, the Commerce Department reported that sales of new single-family homes rose by 2.7% in September to a seasonally adjusted annual rate of 464,000 homes. Economists had expected sales would drop from the August level.

Last week, the Treasury Department started recapitalizing nine major banks with $125 billion. The measure is designed to bolster the banks’ balance sheets so they will begin more normal lending practices. The action marks the first deployment of resources from the government’s $700 billion financial package passed by Congress on October 3.

On Tuesday, the Conference Board said the consumer confidence index, which had improved moderately in September, fell to an all-time low in October. The index now stands at 38, down from a revised 61.4 in September and significantly below analysts’ expectations of 52.

The Commerce Department reported Wednesday that orders for durable goods rose by 0.8%, surprising economists who had expected a decline. Orders had fallen by 5.5% in August, which was the biggest setback in nearly two years.

On Wednesday, the Federal Reserve slashed its key interest rate by half a percentage point to 1%. This is the interest banks charge on overnight loans. The funds rate has not been lower than 1% since 1958, when Dwight Eisenhower was president.

Gross domestic product — the total output of goods and services in the United States — decreased at an annual rate of 0.3% in the third quarter, the Commerce Department estimated Thursday. Domestic sales fell 1.8%, the biggest decline in 17 years. Consumer spending dropped 3.1%, the first decline in 17 years and the largest drop in 28 years.

Upcoming on the economic calendar are reports on factory orders on November 4 and the pending home sales index on November 7.

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Real Estate Outlook: Home Sales Rise

It'd be a mistake to give too much weight to a single week's statistics that point to a turnaround taking shape in the housing market. But this week's and this past month's numbers have been exceptionally promising.

You can't just ignore them.

Start with housing sales. Resales of existing homes jumped by 5.5 percent last week -- that was the largest monthly increase since July of 2003, in the middle of the housing boom. In the western states, sales were up a record 34.4 percent!

Now, it's true that a lot of these sales are foreclosures and pre-foreclosure transactions, and they carry low prices. But that's precisely how turnarounds develop coming off of down cycles -- you've to sop up the houses that were unaffordable to their buyers, were way overpriced and went belly up.

Sales of newly constructed homes also were higher in the latest month, according to the Census Bureau -- up by 2.7 percent on average nationwide, but by an impressive 22.7 percent in the West.

Still another positive: More evidence that the bulging unsold inventories of new and existing houses in many parts of the country are now falling. A quarterly survey by the Wall Street Journal released last week found inventories down in a majority of the 18 markets studied.

In Sacramento, California, the inventory dropped by 32.1 percent during the past three months. In Orange County, California, inventory was down 21.6 percent, 21.5 percent in Boston, 21.1 percent in Denver, and nearly 21 percent in San Diego.

Across the country, the backlog of unsold but listed houses dropped 1.2 percent to a 9.4 month supply last month, according to the National Association of Realtors -- that was down from an 11 month supply the previous month.

On top of all this, we saw new mortgage applications take another big jump this past week, with 30-year fixed interest dropping to 6.26 percent and 15-year rates to 6.1 percent. Applications to purchase homes using conventional loans were up by 7.9 percent during the week, according to the Mortgage Bankers Association. New purchase applications using FHA insurance jumped by 10.1 percent.

As we said, one week of good news does not mean we're officially in turnaround mode, and certainly the softness in the overall economy isn't helping.

But you've got to start connecting the dots. Week after week, month after month, housing and real estate numbers are starting to look better and better.