Monthly Archives: May 2015

Top U.S. Cities for Home Buyers

Buying a home is the largest purchase many people will make in their lifetime. If bought with a mortgage, it’s effectively an investment bought on margin. Homeownership’s tax advantages coupled with the fact that you’re probably also going to live in it increases the appeal.

The market is up right now. Economist Robert J. Shiller found that U.S. homes historically appreciate less than 1% above the rate of inflation. Of late, however, home values have been soaring. The national median price for an existing single-family home in the first quarter was $205,200, up 7.4% from the first quarter of 2014, according to the National Association of Realtors.

The median for new homes exceeds $280,000, though those typically only make up one-tenth of all home sales.

So where are the best places to make your home investment? The trick is finding a desirable area with strong job growth, say experts.

West Coast Rules

The most expensive market for existing single-family homes (including condos) is San Jose, Calif., where the median price was $900,000 in the first quarter, according to the association. San Francisco comes in second at $748,300; Honolulu is third at $699,300; and the Californian metro areas of Anaheim-Santa Ana and San Diego round out the top five at $685,700 and $510,300, respectively. These prices are for cities and their surrounding metropolitan areas. Thus, New York City — where a lean-to made of rat hide in a garbage-strewn alley might sell for a stack of gold — is lumped in with surrounding areas of Long Island and New Jersey, which lowers its overall median price to below $400,000.

Real estate prices are highly correlated to employment growth, said Brian McAuliffe, an executive managing director in CBRE Group’s (CBG) Capital Markets division. “Cities and their immediate surroundings have done well in recent years, and should continue to do well, so long as job growth continues,” he said. “In particular, San Francisco, Seattle, New York, Chicago and Boston have done well in the past five years, and should see continued growth in the years to come.”

McAuliffe’s other picks as to where home prices are rising: Texas, Washington, D.C., Los Angeles, Denver and Charlotte, where a strong financial services sector is blooming along with a robust high tech scene.

We’re seeing the reemergence of urban communities,” said McAuliffe, citing the increased interest in “live, work, and play communities,” where people — including the upcoming Millennial generation — are forgoing long commutes to the suburbs to live close to the urban areas where they work and socialize.

Prices in Recovery

Looking at domestic real estate prices on a regional basis, the West and South are doing exceptionally well, said David M. Blitzer, managing director and chairman of the Index Committee at S&P Dow Jones Indices, which puts out the S&P/Case-Shiller Home Price Indices, a leading measure of U.S. home prices. He added that prices in Denver and Dallas hit new all-time high prices in the last several months, while the Midwest and Northeast saw more moderate price gains.

Nationwide prices plunged about 35% when the housing bubble collapsed in 2008, but they have recovered by about half to two-thirds of where they dropped to, he said.

“Across the entire country, prices are up about 4.5% over the last year,” said Blitzer. “That is about double the inflation rate and double the rate of wage growth.” He also cited an improving economy and job market for aiding the rise in prices; low inventories are pushing prices higher in some regions.

The Bottom Line

U.S. housing starts have nearly doubled in the past five years, which shows the strength of the residential marketplace. Commercial real estate has done even better, having recovered nearly all recession-era losses thanks to gains hovering around the double-digits for the past five years. With the U.S. Labor Department reporting that the unemployment rate dipped to 5.4% in April — the lowest rate in seven years — it seems likely real estate will continue trending upward for the foreseeable future. Your best bet for a good deal is to seek out areas with lots of job growth potential.

By Joseph A. Dallegro | May 27, 2015     

 

 

 

U.S. Economy Edges Closer to Recession

“It is hard to imagine any time in history when such rampant pessimism about the economy has existed with so little evidence of serious trouble,” said a prominent economist.

No, he wasn’t referring to our current situation. This statement was made in January 2008, and the worst U.S. recession since the Great Depression had already started.

In a display of revisionist history, everyone seems to believe that the housing bubble and ensuing recession were widely foreseen, but they simply weren’t.

Despite all that we’ve been through, economists seem to be as clueless as ever.

What’s more, the next recession isn’t likely to be as bad as the last one (at least in the United States). So, if economists had a hard time spotting the Great Recession in real time, then rest assured that a garden variety recession is going to be completely unanticipated.

And we may be witnessing the start of a recession right now…

In late April, we learned that preliminary U.S. real GDP growth for the first quarter of 2015 was just 0.2% – lower than 82 of the 86 estimates from economists polled by Bloomberg.

Interestingly, the Atlanta Fed’s GDPNow forecasting model actually nailed the number by predicting 0.1% growth.

However, information released in May indicates that growth actually contracted quarter over quarter. Barclays Capital and JPMorgan (JPM) both lowered U.S. Q1 GDP estimates to negative 1.1% after disappointing factory order data revisions last Thursday.

Now, it even looks as if the second quarter is imperiled. Retail sales for April were disappointing. Again, economists had expected that a decline in gasoline prices would boost consumption, which hasn’t happened.

What’s truly amazing is that retail sales and food services (excluding motor vehicles and parts dealers) contracted versus the year-ago figure. As can be seen in the chart below, retail sales growth is actually lower than it was at any point during the recession in 2001!

Americans, You're Not Spending Enough: U.S. Retail Sales and Food Services (Excluding Motor Vehicles and Parts Dealers)

On Friday, we learned that industrial production contracted in April. GDPNow’s forecast for the second-quarter growth is running at just +0.7%.

Granted, some components of GDP – such as net exports (trade) and changes in private inventory levels – are extremely difficult to forecast, so the model isn’t going to appear prophetic every quarter. Nonetheless, it’s a good approximation.

All of this points to a grim conclusion: The probability of a U.S. recession is increasing. Ironically, the Federal Reserve is supposed to be raising short-term interest rates sometime this year.

The Elusive Normalization

I hate to beat a dead horse, but economists have been wrong about the timing of Fed action, as well. A rate hike had been expected in June, but that’s obviously not going to happen.

According to a Wall Street Journal poll conducted last week, 73% of economists surveyed expect the Fed to start raising rates in September.

As I’ve said before, the economic data – which are turning abysmal – simply don’t support a hike.

Nonetheless, the Fed seems predisposed to tighten monetary policy. After all, full employment is half of its dual mandate. The unemployment rate (however misleading it may be) is at 5.4%, down from 10% in 2009.

Perhaps Fed Chair Janet Yellen wants to hike in an attempt to promote “financial stability,” which she admitted has sort of become an “unwritten third mandate.”

Welcome to the theater of the absurd! The Fed has a history of facilitating excessive leverage and speculation, causing instability. The credit-fueled shale oil boom is just the latest example.

The leverage and speculation already in the system will make it very hard to tighten.

Indeed, if the Fed does want to hike, its road ahead has some scary precedents. A handful of major central banks have attempted to raise interest rates in recent years: the Bank of Japan in 2006, the Riksbank (Sweden) in 2010, and the European Central Bank in 2011.

Ultimately, these tightening campaigns failed, and the policy rates were once again lowered. All three central banks have since engaged in quantitative easing (even more stimulus).

If the Fed does raise rates, we’ll likely experience a similar fate. Just don’t expect economists to provide anything besides comic relief throughout the entire journey.

Safe (and high-yield) investing,

Alan Gula, CFA

Foreclosures Continue Post-Recession Slide

By Beth Braverman

A recovering economy and healthier housing market has pushed the number of seriously delinquent mortgages (90 days ore more past due) in March to the lowest level since May 2008, according to a new report from CoreLogic.

Economists expect the trend to last. “Foreclosures and serious delinquency rates continue to drop as the home purchase market begins to emerge from its eight-year slump,’ CoreLogic president and CEO Anand Nallathambi said in a statement.

The country’s foreclosure inventory fell 25.7 percent and completed foreclosures dropped 15.5 percent year-over-year. At 41,000 completed foreclosures, the monthly total has fallen by nearly two-thirds since peaking in September 2010.

Even with the declines, the number of foreclosures is still above historical norms. Completed foreclosures averaged just 21,000 per month nationwide between 2000 and 2006. Since September 2008, 5.6 million homes have been lost to foreclosure.

The number of seriously delinquent mortgages fell nearly 20 percent from March 2015 to 2015 to 1.5 million mortgages.

Florida had the most completed foreclosures (110,000) in the country over the past year, according to the report, followed by Michigan (50,000), Texas (34,000), Georgia (28,000), and Ohio (28,000).

South Dakota had the fewest completed foreclosures, with just 16 homes going back to the banks in that state.

Sales of single-family homes increased 19 percent from March 2014 to March 2013, and the average sale prices spiked more than $10,000 to $343,000.

 

Wells Fargo customers: check your statements and online accounts

City officials and former Wells Fargo employees are asking consumers to scrutinize their bank statements and pay extra attention to online accounts after a lawsuit Monday accused bank employees of opening unauthorized accounts and moving clients’ money around to meet corporate sales quotas.

Los Angeles City Atty. Mike Feuer filed the civil complaint against Wells Fargo bank, claiming the California-based financial institution urged employees to meet challenging sales quotas and that employees responded by using confidential client information to open unwanted accounts.

On Tuesday, Feuer’s office urged Wells Fargo customers to look carefully at their recent bank statements to see if they had been victimized by similar conduct.

Feuer asked clients to alert his office immediately if they noticed checking or savings accounts had been opened in their names at the bank without their permission. He also asked Wells Fargo customers to be wary of credit and debit cards appearing by mail, as the cards’ accounts could have been opened by employees trying to reach sales quotas.

“Have accounts that they have closed remained open? Have they received debit or credit cards they didn’t ask for? Have they incurred charges on any of these accounts that they have not authorized?” Feuer said.

Maged Nashid, a former Wells Fargo manager in Southern California, said customers should pay close attention to their online bank statements. Nashid, who says he was fired from the company in retaliation for questioning practices similar to those alleged in Feuer’s lawsuit, said Wells Fargo employees who open fraudulent accounts usually attach them to bogus mailing addresses.

In other words, if an unauthorized Wells Fargo account had been opened in your name, you likely would never receive a mailed statement about that account.

In other words, if an unauthorized Wells Fargo account had been opened in your name, you likely would never receive a mailed statement about that account.

“The client would never be aware of it,” he said. “The only way to actually find out about it is through the online banking.”

Nashid said clients also should review bank statements for suspicious withdrawals ranging from $25 to $100, the same amounts needed to open a Wells Fargo checking or savings account.

Wells Fargo employees hoping to meet their quotas sometimes would use a client’s savings to open fraudulent accounts under fake names, he said.

Customers concerned about their accounts should contact the City Attorney’s tip line at (213) 978-3393, according to Feuer.

 

 

 

 

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