INFO THAT HITS US WHERE WE LIVE  Last week began with somewhat tepid housing news, as starts were reported down 1.0% for July. But once again, the decline was all due to a drop in the volatile multi-family part of the market. In fact, single-family starts actually increased 1.7%, gaining for the fifth month in a row and now up 37.3% since February! Likewise, building permits for single-family homes were UP 5.8% for July, gaining for the fourth month in a row! The National Association of Home Builders chimed in with their builders’ confidence index at a new high of 18.

We ended the week with existing home sales UP 7.2% in July to a 5.24 million annual rate. This is the fourth month in a row of gains and the biggest one since the mid-1990’s. Sales are now HIGHER than a year ago and that’s the first time we’ve seen that since 2005. Since the January low, overall sales are UP 17%. Experts say housing will recover when there’s a bottom in sales, a bottom in building and a bottom in prices. Well, sales and starts have now been UP for several months. Some observers estimate national average home prices are at or even below fair value and should therefore bottom by year end, with many areas likely to see prices inch upward very soon.

>> Review of Last Week

HEADED BACK UP… The stock indexes registered their fifth weekly win out of the last six weeks, with the S&P 500 reaching its highest level since October. At the same time, commodities were strong, with crude oil hitting a 10-month high.

The week did get off to a shaky start, thanks to China’s stock market reversing course. The Shanghai Composite had been up 109% from last October to the beginning of August, but went down 10% last week and 20% over the last two weeks. But investors ultimately remembered it’s still the US economy that leads the way and our companies are reporting pretty good Q2 earnings. Another sour note came from Initial Jobless Claims, up by 15,000 for the week, although continuing claims pretty much stayed the same.

On the positive side, in addition to the extremely encouraging housing numbers, we had good indicators for manufacturing. The Empire State index, gauging manufacturing in the New York region, increased to +12.1 in August and is now the highest it’s been since November 2007. Later in the week, the Philadelphia Fed index for manufacturing activity in that region increased to +4.2 for August. This is its first positive reading since 2007 and indicated that manufacturing is now expanding. All this contributed to a 156-point market gain on Friday.

For the week, the Dow was UP 2.0%, to 9505.96; the S&P 500 shot UP 2.2%, to 1026.13; while the Nasdaq ended UP 1.8%, to 2020.90.

Bond prices held up pretty well for most of the week, but got slammed Friday as stocks rallied and traders worried about upcoming supply. The price of the FNMA 30-year 4.5% bond we follow ended just a tad below the previous week’s close of $99.88, dipping to $99.69. Mortgage interest rates, remaining in the very attractive range they’ve been in all year, hit their lowest levels in months.

>> This Week’s Forecast

NEW HOME SALES AND Q2 GDP… Interesting economic reports pepper the week, with New Home Sales getting our attention, of course, and then preliminary Q2 GDP. We’ll also have August Consumer Confidence and July Personal Income and Spending. These are important takes on the health of the consumer, whose spending drives two-thirds of the economy.

Dell, Winn-Dixie, Staples and Toll Brothers will all be reporting quarterly earnings.

Weaker than expected economic data tends to send bond prices up and interest rates down, while positive data points to lower bond prices and rising loan rates.

Second Quarter Existing-Home Sales Rise

Existing-home sales in the second quarter showed healthy gains from the first quarter in the vast majority of states, and price declines have increased affordability in most metro areas, according to the latest survey by the NATIONAL ASSOCIATION OF REALTORS®.

Total state existing-home sales, including single-family and condo properties, rose 3.8 percent to a seasonally adjusted annual rate of 4.76 million units in the second quarter from 4.58 million units in the first quarter. However, they remain 2.9 percent below the 4.90 million-unit pace in the second quarter of 2008. Continue reading ‘Home Prices Stabilize, According to NAR’

INFO THAT HITS US WHERE WE LIVE  We got another positive housing report last week, this time with Pending Home Sales shooting up a surprising 3.6% after a mere 0.7% was expected by the experts. This makes five consecutive months of gains for Pending Home Sales and that’s the first time that’s happened since July 2003. Low mortgage interest rates and affordable home prices are what’s moving things upward.

The affordability is amazing. The median existing home price in June was $181,600. But a family earning the median income – $60,700 – could actually afford a home costing $289,100. With 20% down, they would spend about 25% of their gross income on the mortgage payment! And rates dropped again last week, keeping things very affordable indeed.

The Wall Street Journal reported inventories of homes for sale fell again in many U.S. cities last month. In 28 major metro areas, the supply of homes for sale at the end of July was down 2.5% from June, including single-family homes, condominiums and town houses. This compares to an average drop for July of just 1.0% over the last 25 years. Compared to July 2008, inventory in these 28 metros was down a whopping 27%!

>> Review of Last Week

RECESSION OVER?… Let’s not get ahead of ourselves. No one’s claiming the recovery is in full swing, but there are plenty of signs the bottoming process may be coming to an end. Investors certainly supported that view last week, as their solid buying sent stock prices up nicely again. The Dow is now up almost 7% for the year. The broader S&P 500 that professionals prefer to watch is up almost 12% for the year, and just went over the 1,000 threshold. The more volatile Nasdaq has almost a 27% gain for the year and just edged past 2,000.

This week’s good feelings weren’t just the result of good corporate earnings reports, although we had some nice news in that department. Ford reported a 2.3% monthly sales boost, its first since 2007. Tech giant Cisco and consumer giant Procter & Gamble also beat earnings estimates. But get this. Bad boy AIG, who needed a big bailout because of its credit default swap fiasco, came in with its first quarterly profit since Q3 of 2007 and it was almost a buck over expectations. This should make taxpayers feel great, since we now own so much of the company. There was a bit of a downer from year-over-year same-store sales coming in below expectations for 15 of 27 retailers.

The big boost in positive energy came from economic data. Pending Home Sales were noted above. Then we had ISM Manufacturing moving up for the seventh straight month, to 48.9 for July. This is awfully close to 50, above which is economic expansion! But the blockbuster of them all was the highly anticipated, week-ending Employment Report, which came in with a way-better-than-expected 247,000 jobs lost in July, the lowest level in nearly a year. And the unemployment rate dropped for the first time in months, to 9.4%. It sure looks like we’re starting a recovery, though no one knows how strong it will be.

The Dow shot UP 2.2% for the week, to 9370.07; the S&P 500 moved UP 2.3%, to 1010.48; while the Nasdaq finished UP 1.1%, to 2000.25.

With stocks ending the week on a strong upturn from the encouraging employment report, bond prices dipped. The price of the FNMA 30-year 4.5% bond we watch ended down from the previous week’s close of $100.62, dropping to $98.75. Nonetheless, mortgage interest rates are still holding at low levels.

>> This Week’s Forecast

SHOP TILL YOU DROP… More retail data will be a focus for this week, as world no. 1 retailer Wal-Mart reports earnings, along with Macy’s, Kohl’s, Nordstrom and JCPenney. We’ll also get July Retail Sales figures and the CPI take on inflation.

In the midst of all this will be another little two-day meeting from our friends at the Fed. The FOMC (for Federal Open Market Committee) rate decision coming out is not expected to change the funds rate one iota. But the statement released by the committee at 2:15 on Wednesday is sure to get picked apart for signs of future moves by the Fed… and the economy.

Source: Pete Minarch of REMN in Bradenton, Florida.