September pending home sales fall

It's a good life!  What?  Why would a real estate professional entitle a blog post "September pending home sales fall" and then start the entry with "It's a good life!"  

You know, there is always another side to the story.  The article below is from CNNMoney.com, I've copied it here for convenience.  Yes, the September Pending Home Sales Index fell 4.6% after climbing in August.  

But the other side of the story is this:  the September 2008 index is up 1.6% from a year ago.  This is progress.  What caused our pain in September 2008?  On September 7, 2008, James Lockhart, director of the Federal Housing Finance Agency(FHFA), announced that Fannie Mae and Freddie Mac were being placed into conservatorship of the FHFA. The action is "one of the most sweeping government interventions in private financial markets in decades".   Fannie Mae and the Federal Home Loan Mortgage Corporation (Freddie Mac) owned or guaranteed about half of the U.S.'s $12 trillion mortgage market. 

Those of us who are actively involved in the real estate business knew September was going to post dismal numbers -- we felt it.  

But the fact is, people continue buying and selling houses.  Hey, we're having a sale here!  "Everything must go!"  "One year only sale!"  "Inventory clearance!"  This is the time to buy your first home.  This is the time to invest in a rental property.  This is the time to move up (you'll take a beating on your sale, but, if you're moving up, you'll give the seller a bigger beating on the purchase!)  

NEW YORK (CNNMoney.com) -- Homebuyers pulled back some more in September amid turmoil in the financial markets.

The Pending Home Sales Index for the month fell 4.6% to 89.2 after climbing 7.4% in August, according to the National Association of Realtors (NAR). Still, the index was up 1.6% from a year ago.

NAR said the dip in sales was tempered by a sharp decline in prices, which fell 9% year-over-year in September. Also propping up sales to some extent were affordable mortgage interest rates, which dipped below 6% for a 30-year fixed-rate loan during the month, according to Freddie Mac (FRE,Fortune 500).

It doesn't look like things will improve soon.

"Right now, we're in a recession, and unemployment will increase through 2009," said NAR chief economist Lawrence Yun. "Consumer spending has halted and businesses are very cautious of expanding. It is unclear by how much the global economic slowdown will dampen U.S. exports, which had been rising strongly."

In contrast to Yun, The National Bureau of Economic Research - which is the organization whose definition of a recession is most widely accepted - has yet to call the current downturn a recession.

Yun expects that the economy will continue to deteriorate, with the gross national product contracting through the end of 2008 and first quarter of 2009.

"The depth of the recession depends entirely on housing," he said. "With sufficient housing stimulus, the recession will be shallow. If government actions stay focused on housing, the cost to the Treasury would be much less that the potential losses in the nation's output and income in a severe recession."

One bright spot: NAR reports that the drop in home prices, combined with low interest rates, have brought home buying affordability to 2003 levels. But the improved affordability may not be enough to quickly bring housing all the way back into recovery.

"To me [the pending home sales drop] is another indication that we haven't hit bottom yet in the housing market," said Nariman Behravesh, chief economist for Global Insight.

The financial market turmoil and the freezing of lending have slowed home sales. "A lot of people simply can't get a mortgage these days and that's a key element," he said.

Yun, however, noted that pending home sales did increase in the regions that have already seen massive price declines.

September sales volume climbed 3.7% in the West, and was 39.5% above a year ago. In the Midwest the index inched down 0.7% to come in 3.1% below September 2007. Pending sales in the South dropped 7.9% for the month and were down 11.3% compared with a year ago. In the Northeast, the index dropped 16.8% for the month and 9.4% year-over-year.

With the economy slowing, Yun revised his forecast for existing home sales downward to 5.02 million for all of 2008. Last month, he forecast sales of 5.04 million existing homes.

The total should rise to 5.32 million in 2009, according to Yun. He said new home sales are likely to amount to 487,000 for 2008 and 413,000 in 2009.  

Sales of newly constructed homes rose in September, according to the monthly report from the U.S. Census Bureau, inching up 2.7% from August to an annualized rate of 464,000.

But the reading was still the worst September for new home sales since 1981. Sales are down 33.1% from September of 2007, and far below the pace of the boom years. In 2005, for example, 1.3 million new homes were sold.

Unbelieveably low rates in the early to mid-2000s created such interest in real estate that 40% of home purchases in 2005 were non-owner-occupied -- investment properties, 2nd homes, vacation homes, etc. So, when you compare todays data to anything in 2005, you are getting a really skewed look at things. 2005 was the odd year, not 2008. 2008 is far more normal than most consumers realize.

It's like the tech boom of the late 90s. Everyone was pouring money into theses stocks without thinking. And it always crashes...eventually.

But it's great news that today's new home sales numbers are higher than last month. We will recover from today's problems. And, hopefully, we'll be a whole lot smarter.

Deflation

Lower gas prices sound good...but, have you thought about...deflation.

Ugh....

"When prices start to fall because of lack of demand, they can go well below the cost it takes to produce products," said Bernard Baumohl, executive director of the Economic Outlook Group. "Companies have no alternative than to cut back production and lay off a lot of workers. That cuts demand more. You get this vicious downward spiral in prices."

Stocks rallyed yesterday-- up over 900 points. This surge represents the Dow's best day ever. This morning, futures are pointing to another surge. Investors reacted to global efforts over the weekend and into Monday aimed at unfreezing credit markets and getting money flowing through the pipelines.

This morning the Bush administration will announce the Treasury's intention to spend $250B for direct equity stakes in banks.

International markets opened strong as well.

FHA Myths

FHA loans will account for nearly 50% of the loans in the US over the next 12 months. Many myths surround the FHA mortgage. But, more and more, I see people choosing this loan because it offers some flexibility not found in the conventional market.

A few years ago, very few mortgages were FHA because the subprime market looked more attractive. Well, subprime lending is gone. And FHA has stepped up to rescue the borrower who may need a little extra help.

Matt Eversgerd, of First Integrity Mortgage Services, has put together a small list of FHA myths. I highly recommend Matt to my clients. He can be reached at 314 620 7227.

Please see the link below for more information.

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FHA%20Myths%21%21

Greenspan says the U.S. housing market will recover -- soon!!

I'm beginning to feel signs of a recovery in the market. Things have been slow, but I've got people looking for houses in the St. Louis area. Moreover, Nolting Real Estate's listings are selling. Former Federal Reserve chairman Alan Greenspan said the U.S. housing market will begin to recover in the first half of 2009, according to an article he wrote for Emerging Markets magazine published on Friday.

The rate of decline in U.S. home prices is the first positive note in the year-long trauma and that eventually, frozen credit markets will thaw "as frightened investors take tentative steps toward reengagement with risk."

"More conclusive signs of pending home price stability are likely to become visible in the first half of 2009," he wrote. In yesterday's post, I noted that pending home sales are up.

There is a light at the end of the tunnel.

9.1 Months

Using the latest data from the St. Louis MLS (August '08), I've calculated that our current St. Louis residential housing inventory will take about 9.1 months to sell. Last August, we were running at about 8.07 months.

Is my head in the sand?

Maybe. I know that the local and national (and international) real estate markets are bad. For the purpose of this blog, I choose to focus on good news. I'm confident that my readers are finding the bad stuff elsewhere.

Frankly, focusing on the good news is a survival tactic for any good Realtor in today's market. Let's face it, do you want to work with me if I have a bad outlook.

We're having a good year -- at least that's what our numbers say. By August of this year, we had sold more real estate than in all of 2007. So, I'm positive. I have a tinge of heartburn over the Dow falling 679 points yesterday. But I'm bullish on the future of the real estate market. The deals are out there -- It's a great time to buy.

Now on to some more good news:

The National Association of Realtors says pending home rose 7.4% from July to August, an unexpected piece of positive news for the battered U.S. housing market.

The group said Wednesday its seasonally adjusted index of pending sales for existing homes rose to 93.4 from an upwardly revised July reading of 87. The reading was the highest since June 2007.

Wall Street economists surveyed by Thomson/IFR had predicted the index would fall to 84.9.
The index, which sunk to a record low of 83 in March, stood at 85.8 in August 2007.

Bull Markets Last Longer

by greg howell (314.854.5607 direct)

HOPE:
While the markets continue to decline and the end seems to never get here, I wanted to give you a little hope. I have talked with a lot of clients and the overwhelming question seems to be: "Should I hang on because if I do, my account is going to end up being zero?"

PLEASE TAKE3 MINUTES TO LOOK AT THIS ATTACHMENT (it will hopefully give you calming effect to what you are reading in the papers and seeing on TV).

HISTORY:
Go back over just the past 40 years (to 1968).....the 2 worst down(Bear) markets have been 1973-1974 (when the S&P 500 fell 43% over 21months), and 2000-2003 (when the S&P 500 fell 43% over 30 months). We are currently in the 14 month of this Bear market and the S&P 500 is down about 28% since Jan.

LOOK AT WHAT HAPPENED AFTER THE S&P 500 STOPPED DECLINING - from 1974-1976 the market went up 86%!!!!! After the tech bubble in 2004-2007 the market soared 91% over the next 5 years.

We WILL have another Bull (UP) market......It WILL come.....you just have to ride out the bear markets to enjoy and reap the benefits.

With the being said, if you can't take any more pain, then call me and we can discuss the appropriate options.

Also - If you know of anyone who is asking you questions about what they should do and you don't feel comfortable giving advice, please pass my name along to them. I would love to help any of your friends or family.

Gregory R. Howell
Vice President-Wealth Management
Financial Advisor
citi smith barney
101 S. Hanley Road, Suite 600 Clayton, MO 63105
Tel: 314.854.5607 Direct 800.325.0630 Toll Free
314.854.5606 Fax
For account access or market information please access my website at
http://fa.smithbarney.com/greghowell
Bull_Markets_have_lasted_longer%5B1%5D.pdf

How did we get here?

Where did all of this reckless mortgage lending behavior come from? What started us down the path of loaning money to those who were previously unloanable (is that a word)?

During the dot.com bailout, in 2001, the Fed lowered key interest rates to historic lows. This was an attempt to revive the economy that had been destroyed by the dot.com run up.

Homeowners, armed with historically low mortgage rates, began purchasing properties as if they were playing monopoly. Prices of real estate soared. Investors bought larger, more expensive properties with little money down. In 2005, 7.1 M properties were bought in the US. 40% of them were non-owner-occupied!!!

Wall Street investment banks bundled risky mortgages, packaged them into bonds, and sold them to banks and investors. Bond-rating agencies gave these investments high ratings.

But the subprime borrowers began defaulting on their loans -- some because their adjustable rate mortgages adjusted upward, some because they simply were "bad pay" from the beginning.

Like a house of cards, these defaulting borrowers created a series of events that sent housing prices downward. Banks and brokerages that had borrowed money to boost the impact of those investments had to race to raise capital.

Some, like Merrill Lynch, were forced to sell. Others, like Lehman Brothers, weren't so lucky. "These firms closed their eyes and made very bad bets on risky securities that they didn't truly understand," says Jeremy Siegel, finance professor at the University of Pennsylvania's Wharton business school. "Investments that they did not have to make led to their demise."

More on this soon...

Fed: Emergency cut

The Federal Reserve, working in coordination with other central banks worldwide, enacted an emergency interest rate cut on Wednesday. The Fed lowered its fed funds rate by half of a percentage point to 1.5%.

By lowering this rate, money gets pumped into the economy because borrowing costs go down. In their statement the Fed said, "The recent intensification of the financial crisis has augmented the downside risks to growth and thus has diminished further the upside risks to price stability."

Rate cuts by the Fed always lead to concerns about inflation. Although inflation has been high, the Fed believes that the recent drop in energy prices and the weaker prospects for economic activity have reduced this threat to the economy.

This aggressive action by the Federal Reserve is the latest attempt to get the economy turned around. For more information about the St. Louis housing market, call me at 314 267 2636.