- Dec 2008: Info

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INFO THAT HITS US WHERE WE LIVE

October Existing Home Sales last week were reported down 3.1%, to a 4.98 million annual rate. Compared to a year ago, existing homes sales are down just 1.6%. Basically, sales have remained in a range of 4.85 to 5.14 million for the last 14 months. But we are working off the excess inventory, which is now at 9.6 months, down from the 11.0-month peak set in June. It is encouraging that credit-worthy buyers are getting loans and that mortgage rates, which have been low, may be coming down even more.

October New Home Sales came in at a 433,000 annual rate, lower than expected. The inventory is at 11.1 months, but the actual number of new homes has fallen to 385,000, down 32.5% from its mid-2006 peak and its lowest level since 2004. Unsold completed new homes are now down to 172,000, a record decline from their 199,000 peak in January. With the recent drop in mortgage rates, some experts are now proposing we are perhaps at or very close to the bottom for new homes sales.

Last Tuesday saw some very positive news for our industry, when the government announced a $600 billion program to purchase mortgage-backed securities and debt issued by Fannie Mae, Freddie Mac and Ginnie Mae. This should help bring down mortgage rates for people buying or refinancing with a conforming mortgage. Past recessions have shown that home sales go up when mortgage rates go down.

Review of Last Week
MORE TO BE THANKFUL FOR... The markets ended Thanksgiving week recording their fifth straight day in a row of gains. During that time, the Dow rose almost 17%, the S&P 500 19% and the NASDAQ well over 16%. This was the first time the Dow and the S&P gained for five straight sessions since July 2007. And these were the biggest five-day percentage gains in over seventy years.

All this happened in a week that had its share of disappointing economic news. Q3 GDP was revised downward and we had the first decline in consumer spending since 1991. Consumers' risk aversion hit the business world too, where new orders for durable goods sank 6.2% in October. The Chicago PMI, a manufacturing gauge, came at the lowest level in over 25 years.

But wait. Personal income was up 0.3% for October and, although down for the month, consumer spending is up 2.3% for the year. Oil is now $53.63 per barrel. Investors also gained confidence from the government's $300 billion backstop for Citigroup, as well as the $600 billion purchase of mortgage-backed securities covered above. Naysayers feel the shortened, low volume trading week means this is just a bear market bounce, but it's encouraging to see some confidence coming out of Wall Street.

Friday's rally left the Dow up 9.7%, to 8829.04. The S&P 500, up 12.0%, went to 896.24. The NASDAQ, up 10.9%, ended at 1535.57.

Stock prices are going up, but people still worry the consumer could put the brakes on this holiday season. So many investors seek a safe haven in bonds, pushing the yield of the benchmark 10-year Treasury to an historically low 2.906%. This points to lower mortgage rates, which already dropped last week and are expected to slide even lower, as reported above in Home Base.

This Week’s Forecast
WILL IT BE A FREAKY FRIDAY?... It should be an interesting week, but the big focus will be on Friday's November employment report. Economists expect another month of job losses and everyone will key on the overall unemployment number.

On the way to this hopefully not-too-freaky Friday, we'll have Monday's ISM manufacturing Index and Tuesday's appearance before Congress by GM, Ford and Chrysler, revealing how they would deploy a possible $25 billion government loan.