The S&P/Case Shiller Composite Index Flat

Single-family home prices were unchanged in August, pointing to a market that continued to stabilize but has yet to gain traction, a closely watched survey said on Tuesday.

The S&P/Case Shiller composite index of 20 metropolitan areas was flat compared to the month before on a seasonally adjusted basis. A Reuters poll of economists had forecast a gain of 0.1 percent.

On an unadjusted basis, price gains slowed with the index up 0.2 percent compared to a 0.9 percent gain in July.

The annual rate of decline improved, with prices in the 20 cities down 3.8 percent compared to a year over year decline of 4.1 percent the month before. Still, it fell shy of expectations for a decline of 3.5 percent in August.

"The good news is continued improvement in the annual rates of change in home prices," David Blitzer, chairman of the index committee at Standard & Poor's, said in a statement.

"In spring and summer's seasonally strong period for housing demand, we cautioned that monthly increases in prices had to be paired with improvement in annual rates before anyone could declare that the market might be stabilizing."

Federal Budget 101 ~ What Does It Really Mean!!

The U.S. Congress sets a federal budget every year in the trillions of dollars. Few people know how much money that is so we created a breakdown of federal spending in simple terms. Let's put the 2011 federal budget into perspective:

        U.S. income:................ $2,170,000,000,000

        Federal budget:............$3,820,000,000,000

        New debt:....................$ 1,650,000,000,000

        National debt: ............$14,271,000,000,000

        Recent budget cut: .........$ 38,500,000,000 (about 1 percent of the budget)

 It helps to think about these numbers in terms that we can relate to. Let's remove eight zeros from these numbers and pretend this is the household budget for the fictitious Jones family.

        Total annual income for the Jones family:....... $21,700

        Amount of money the Jones family spent:...... $38,200

        Amount of new debt added to the credit card: $16,500

        Outstanding balance on the credit card: .......$142,710

        Amount cut from the budget: ................................$385

So in effect last month Congress, or in this example the Jones family, sat down at the kitchen table and agreed to cut $385 from its annual budget. What family would cut $385 of spending in order to solve $16,500 in deficit spending? 

It is a start, although hardly a solution. Now after years of this, the Jones family has $142,710 of debt on a credit card (which is the equivalent of the national debt). 

You would think the Jones family would recognize and address this situation, but it does not. Neither does Congress. 

The root of the debt problem is that the voters typically do not send people to Congress to save money. They are sent there to bring home the bacon to their own home state. 

To effect budget change, we need to change the job description and give Congress new marching orders. 

It is awfully hard (but not impossible) to reverse course and tell the government to stop borrowing money from our children and spending it now. 

In effect, what we have is a reverse mortgage on the country. The problem is that the voters have become addicted to the money. Moreover, the American voters are still in the denial stage, and do not want to face the possibility of going into rehab.

IS THERE THE POSSIBILITY OF A DOUBLE DIP RECESSION?

Condition of the US Economy Report

It is a mistake to attempt to match daily or weekly changes in the stock market with underlying economic conditions.  This is popular among individuals on Wall Street and in the media, but the two do not necessarily track one another in the short term, especially in today’s environment.  In the long run, improvements in productivity lead to improvements in profits.  This, of course, directly impacts the stock market.  In the short run, however, other issues are at play.  Businesses and consumers continue to be impacted by negative psychological influences.  Now, the Federal government has introduced politics combined with heightened uncertainty into the mix.  This also happened at a time when the stock market was overvalued a bit anyway.  We all know what happens when all of these things come together.

The good news is that the broad-based psychological impacts will diminish over time as economic conditions improve (especially related to more positive employment data being released).  The semi-good news is that the Federal government can reduce the additional uncertainty and risk it recently introduced by actually fixing the imbalance between revenues and expenditures.  The term “semi-good news” is used since the practice of competency does not always occur in Washington D.C.  Get it done Mr. President and members of Congress.

So what are the economic conditions that would lead an economist to believe that all is not as dire as the stock market suggests?  First, this past month’s employment data is much improved over the previous two months. Creating 117,000 new jobs nationally in July is not all that impressive, but it compares to 46,000 new jobs in June and 53,000 new jobs in May.  Bottom line: employment is still growing, albeit very slowly.

As for this past week’s data, it does not appear that all is lost.  Housing starts in July were below June levels as was much noted this past week.  However, these starts were 9.8% above July of 2010.  Industrial production was up 0.9% in July compared to June.  Furthermore, stronger manufacturing output resulted in upward revisions in both the May and June data.  Manufacturing output rose 0.6% in July over the previous month while motor vehicles and parts production increased by 5.2%.  The capacity utilization rate improved to 77.5%, very near the point where companies feel pressure to expand.  If “analysts” across the country can get back on their anti-psychotic pills, maybe we will see some increase in confidence and additional business investment by this winter.

Jobless claims were basically flat given the degree to which the data is regularly revised.  Finally, the Leading Indicators Index rose for yet another month, to a level of 115.8.  However, keep in mind that stock prices are part of this index.  The subtle growth in the other categories in August will very likely be offset by the trauma in the stock market that we are experiencing.  This will give the appearance of major trouble in the index this next month.  But, as has been noted several times now, stock prices (especially today) are not based on quantitative evaluation.

In addition, while consumer sentiment is down in the most recent survey, retail sales are up 8.9% from a year before and have been trending around 8% since last September.  There is a difference between what a person “thinks” about the economy after watching the news and if they actually spent some money that day.  Those that do not have a job right now probably won’t have one for a while.  But, those that are indeed employed are becoming more confident in their situation.  Furthermore, Real GDP growth isn’t impressive but is growing, as are incomes.  In fact, nearly all of the key economic indicators are still growing.  The underlying economic data from this past month really isn’t all that different from the spring.  All signs point to continued economic expansion, but at a slow pace.

There is one qualifier though.  A weak economy can be significantly impacted by economic shocks.  A shock can be a spike in oil prices, turmoil in the Middle East and now Europe , as well as a large government forgetting how to balance its checkbook.  As of today these shocks have not derailed our weak economic recovery.  But, the risk exists, even if small.  Keep in mind that the economy is large and conditions do not change all that rapidly, at least not as rapidly as opinion on Wall Street.

PHOENIX REAL ESTATE MARKET REPORT - JULY 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 August 2010 to July 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 August 2010 to July 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 10% to 15% 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 decreased approximately -2.3% (down from last month), the average days on market have decreased approximately -13.5% (down from last month) and the number of transaction has increased approximately +30.7% (up 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 transactions 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 percentage of third party purchases (other than banks taking back as REO) has increased substantially since the beginning of this year where we are currently at 40% of all purchases are from third parties. The percentage might appear to be a low number but the last time we experience this volume of purchase was back in August 2006. 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 is NOW!!

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!!