Friday, July 15, 2011

HOW TO TIME THE MARKET ~ THE FIVE KEY "VITAL SIGN" INDICATORS

Real estate trends don't change direction without giving you "WARNING SIGNS" in advance. Identifying a trend change early is what allows you to sell when the market is peaking . . . and buy when the market is hitting bottom.

The five "Vital Sign" indicators in them Phoenix Residential Market Report read the market's warning signs . . . and give you "advance notice" when the current trend in Phoenix real estate is going to change direction.

How accurate are these "Vital Sign" indicators? Very accurate . . . as you'll see in a moment. When the "Vital Sign" indicators are positive, rising prices are almost guaranteed for Phoenix real estate. When they turn negative, a death sentence for price appreciation is near certain.

The Five Key "Vital Sign" Indicators


Vital Sign Indicator #1 : Interest rates.
Interest rates act on property values the same way gravity acts on physical objects. The higher the rate, the greater the downward pull. In other words, rising interest rates have a depressing effect on real estate prices . . . while falling rates tend to raise prices.

Vital Sign Indicator #2 : Home sales.
Home buyers are a dominant force that drive real estate prices higher . . . and lower. It's simple supply and demand. When the number of buyers are increasing, more homes sell . . . and prices go up. When buyers are more scarce, less homes sell . . . and prices tend to go lower. 

Vital Sign Indicator #3 : New home building permits .
New home builders respond to the market place according to demand. When demand is strong, they "pull" more building permits so they can build ~ and sell ~ more homes. When demand is weak, they pull fewer building permits so they won't be stuck with a lot of unsold homes in a softening real estate market.

Vital Sign Indicator #4 : Loan Defaults
Homeowners who default on their mortgage loans are generally having money troubles. This is a sign of a weakening economy . . . which soon translates into a weakening real estate market. When homeowners are defaulting less on their mortgage loans this is a sign of an improving economy and real estate market.

Vital Sign Indicator #5 : Foreclosure Sales
Property owners who default on their mortgage loans – allowing their homes to be sold at a foreclosure sale – are generally having severe money troubles. Like loan defaults, therefore, the number of foreclosure sales is a clear measure of the health of the economy. This determines whether real estate prices are likely to rise ~ or fall. 

THE UNITED STATES "CURRENT" ECONOMIC REPORT

The U.S. Census Bureau announced July 14, 2011 that advance estimates of U.S. retail and food services sales for June, were $387.8 billion, an increase of 0.1 percent (±0.5%)* from the previous month, and 8.1 percent (±0.7%) above June 2010. Total sales for the April through June 2011 period were up 7.7 percent (±0.5%) from the same period a year ago. The April to May 2011 percent change was revised from -0.2 percent (±0.5%)* to -0.1 percent (±0.2%)*.

On unemployment, the Fed stated Nonfarm payroll employment was essentially unchanged in June (+18,000), and the unemployment rate was little changed at 9.2 percent, the U.S. Bureau of Labor Statistics reported today. Employment in most major private-sector industries changed little over the month. Government employment continued to trend down.

For jobless claims, initial claims fell 22,000 to an as-expected level of 405,000 but the period is a shortened one that includes the July 4 holiday (prior week revised upward to 427,000). Another factor is uncertainty over the week-to-week timing of shutdowns, including auto retooling, in the manufacturing sector, a seasonal factor that lowers claims after adjustment and always makes for uncertain readings at this time of year. One factor that is clearly inflating claims is the government shutdown in Minnesota which added 11,500, before adjustment, to the week's total. A look at the four-week average, especially important for uncertain periods, is favorable, down 3,750 to 423,250.

Compensation costs for civilian workers increased 0.6 percent, seasonally adjusted, for the 3-month period ending March 2011, the reported U.S. Bureau of Labor Statistics. Wages and salaries (which make up about 70 percent of compensation costs) increased 0.4 percent, and benefits (which make up the remaining 30 percent of compensation) increased 1.1 percent.

New orders for manufactured goods in May, are up two of the last three months, increased $3.5 billion or 0.8 percent to $445.3 billion, the U.S. Census Bureau reported July 5, 2011. This followed a 0.9 percent April decrease. Excluding transportation, new orders increased 0.2 percent. Shipments, up eight of the last nine months, increased $0.4 billion or 0.1 percent to $443.9 billion. This followed a 0.4 percent April decrease.

Privately-owned housing units authorized by building permits in May were at a seasonally adjusted annual rate of 612,000. This is 8.7 percent (±1.5%) above the revised April rate of 563,000 and is 5.2 percent (±2.4%) above the May 2010 estimate of 582,000. Privately-owned housing starts in May were at a seasonally adjusted annual rate of 560,000. This is 3.5 percent (±12.4%)* above the revised April estimate of 541,000, but is 3.4 percent (±8.7%)* below the May 2010 rate of 580,000.

Consumer confidence in the U.S. rose last week as households became more upbeat about the state of their finances and optimism climbed among wealthier Americans. The Bloomberg Consumer Comfort Index increased to minus 43.9 for the period ended July 10 from minus 45.5 the prior week.

The Misery Index, which takes into account both inflation and the unemployment rate, is currently, slightly below the level seen in December 2009, which is when the economy was still in the midst of the credit crisis. To put this in perspective, we haven't seen the Misery Index this is high since 1983. And what is a bit concerning is that the index has climbed higher each month during 2011. With inflation rising higher still and unemployment not ticking down, the upward trend may well continue in the near future. 

PHOENIX REAL ESTATE MARKET REPORT - JUNE 2011


Phoenix Real Estate Market Report Summary

This data includes single family detached homes, patio homes, condos, and townhomes provided by the Arizona Multiple Listing Service. The monthly charts above are based on trailing twelve monthly averages from July 2010 to June 2011 which shows the total activity in the Phoenix Metropolitan real estate market over a twelve month period. The yearly charts above are based on a yearly average for 2005 to 2010 but a trailing twelve month average from July 2010 to June 2011 for the year 2011. Without the trailing twelve month average for the year 2011, the charts would be substantially skewed and would not portray an accurate view of the market on an annual basis.

As you can see from the first chart above, Cromford Market Index, the first time home buyer tax credit created a great deal of demand in the market similar to the real estate boom from 2004 to 2006. When the government withdrew the first time home buyer tax credit on April 30, 2010, the average sold price and number of transactions decreased and the average days on market increased. Currently the residential real estate market is experiences another buying frenzy that is caused without government intervention or relaxed mortgage underwriting standards. Consumers are jumping into the real estate market because market statistics are indicating the market has hit the bottom and investors can purchase homes at rock bottom prices where they can rent the homes out to receive a 15% to 20% or more return on investment. Due to the current oversupply of homes on the market, real estate prices have not increased significantly but once the supply of homes are purchased real estate prices will start to increase at a faster pace (Chart #2 shows supply). Since January 2011, the average sold price has increased approximately +1.1% (up from last month), the average days on market have decreased approximately -7.2% (down from last month) and the number of transaction has increased approximately +90.7% (up substantially from last month). It should be noted that the month of June experienced 12,190 transaction of which 5,728 transaction were bank owed (up 85.4% since January) and 3,028 transaction were short sales (up 120.2% since January.    
   
The number of Notice of Trustee Sales is currently experiencing a decline due to the declining number of adjustable rate mortgages coming due and from more lending institutions working harder on helping people stay in their homes. The number of foreclosures “notices” entering the market is expected to continue its decline in late 2011 and early 2012 due to the exhaustion of adjustable rate mortgages created between 2003 to 2007. The number of trustee’s deeds issued at the foreclosure auctions was on a steep incline but it has recently tapered off which means the competition for trustee properties is decreasing. According to the above market statistics, the demand for trustee sale foreclosures is decreasing due to the great deal of competition that was experienced over the last three months but the demand for REO properties is increasing. The real estate market has reached a level of equilibrium where demand is equal to supply and all buyers are rushing into the market to take advantage of low prices. Once the supply of residential homes are exhausted and demand continues to rise, real estate prices will begin to rise (depends on the sustained level of demand). Time to buy!!