Market Update!

Mortgage bankers are continuing to see solid locks and fundings, although the trend is definitely toward smaller pipelines. As August comes to a close, the expectation of Fed Funds trading at 4.25% by year-end pretty much sets the tone for the short end of the yield curve, and with it ARM pricing. The long end of the market (including 30-yr fixed rate loans) is being financed in large part by overseas investors. The 2 to 10-yr spread is down to 12 basis points. The combination of investors reaching for long-term yield and oil approaching $70 a barrel is not a great scenario: it is called “Stagflation”. The Fed has made it clear that they will continue their rate hikes, and will not be dissuaded by a yield curve inversion. The last inverted yield curve occurred in 2000 prior to the minor recession of 2001.

Today the Conference Board will post this month’s Consumer Confidence Index at 10:00AM (EST). This index measures consumer willingness to spend, and consumer spending makes up two thirds of the U.S. economy. A decline to a four-month low, as expected due to energy prices, would indicate that consumers may not be making large purchases in the immediate future. We also have July’s Factory Orders data, also expected to decline. Lastly we have the release of the minutes from the last FOMC meeting at 2:00PM EST.

Oil was the focus for Monday, reaching a high of just over $70 per barrel due to hurricane Katrina. Treasuries responded by climbing higher early in the morning and giving back some of the gains later in the afternoon. However, with the economic news this week the focus of the market will probably shift back to fundamentals rather than the price of oil. A spokesman said that President Bush was weighing whether to release some oil from the nation’s petroleum reserves to help refiners hurt by Hurricane Katrina. The government’s supply of nearly 700 million barrels of oil is stored in underground salt caverns along the Texas Gulf Coast, and was established to cushion oil markets during energy disruptions.

Last Week in the News – Economic Update!

Sales of new U.S. homes jumped 6.5% to a record high in July, defying economists expectations for a decline, the Commerce Department reported August 24. The July sales pace was 27.7% higher than a year earlier. While sales climbed, so did supply. The inventory of new homes available for sale at the end of July stood at 460,000, up 1.8% from June and 15% higher than a year ago. The median price of a new home dropped for the third consecutive month, down 7.2% to $203,800 from $219,500 in June.

Sales of previously-owned homes, however, fell 2.6% in July, the National Association of Realtors said August 23. Despite the drop in sales, home prices continued to rise. The median sales price of an existing home was $218,000 in July, up 14.1% from a year ago.

Average U.S. interest rates on 30- and 15-year mortgages fell for the second straight week. One-year adjustable rate mortgages also fell, further keeping shoppers in the housing market.

Meanwhile, orders to U.S. factories for durable goods big-ticket items expected to last at least three years declined by 4.9% in July, the biggest drop in 18 months, the Commerce Department said August 24. Analysts had predicted a 1.2% drop.

The Labor Department reported August 25 that the four-week average for the total number of people receiving unemployment benefits dipped to 2.58 million last week, the lowest level since March 2001.

Next week look for updates on construction spending on September 1.

San Diego Economic Update!

The media is focusing on South Floridians buying supplies and being hit by Katrina (and the Waves), especially since it has become a Category 1 hurricane. (Category 1’s have wind speeds of 74-95 mph, 2’s 96-110 mph, 3’s 111-130 mph, 4’s 131-155 mph, and Category 5’s have winds above 155 mph.) Oil prices reached $68 a barrel yesterday as Katrina crossed the Florida coast, meaning that oil has gained 55% this year.

So far this morning mortgage prices are unchanged, although August’s revision to the University of Michigan Index of Consumer Sentiment is due out. It gives us a measurement of consumer willingness to spend, and is expected to match August’s preliminary reading of 92.7. If it revises lower, consumers were less confident about their personal financial situations than previously thought. This would be good news for the bond market and mortgage rates. Speaking of rates, Greenspan’s recent comments that an inverted yield curve is no longer a reliable indicator of economic “malaise” continues to be of interest as the yield curve continues to flatten. The 2-yr to 10-yr spread down to only 16 basis points. Greenspan will speak today at the Kansas City Fed’s annual conference in Jackson Hole , Wyoming. The markets will be looking for comments on the direction of rates and the housing market bubble, although many believe that it is more of a farewell than a policy direction speech.

Next week is jam-packed with exciting economic releases for the bond and mortgage markets to digest. We can expect much more volatility in the financial markets then we saw this week, especially with many back from pre-school year vacations.

California Median Home Prices

Median Prices By Region – Current Month vs. Year Ago

Jul-05
Jun-05
Jul-04

Statewide

Calif. (sf)
$540,900
$543,120
r
$461,760
r

Calif. (condo)
$426,320
$425,320
r
$368,990
r

Region

Central Valley
$356,260
$353,220

$284,050
r

High Desert
$298,950
$290,510

$234,520

Los Angeles
$543,890
$518,280
r
$451,550
r

Monterey Region
$729,250
$730,470
$624,530

Monterey County
$698,000
$675,000
$565,000

Santa Cruz County
$759,000
$793,000
$635,000

Northern California
$418,630
$433,920
r
$351,680

Northern Wine Country
$639,670
$640,970
$500,450

Orange County
$706,820
$702,400
$648,590

Palm Sprngs/Lwr Desert
$371,390
$393,370
$340,250

Riverside/San Bernardino
$384,910
$373,860
$317,820

Sacramento
$387,810
$381,990
$322,290
r

San Diego
$616,050
$614,120
$582,490

San Francisco Bay
$724,890
$734,610
$651,150

San Luis Obispo
$559,900
$570,870
$452,270

Santa Barbara County
$654,170
$704,270
$475,470

Santa Barbara So. Coast
$1,325,000
$1,250,000
r
$1,049,000
r

N. Santa Barbara County
$462,690
$463,380
$389,610

Santa Clara
$750,000
$760,000
$640,000

Ventura
$694,690
$685,760
$626,510

na – not available
r – revised
Source: California Association of REALTORS®

C.A.R. REPORTS MEDIAN HOME PRICE INCREASED 17.1 PERCENT IN JULY

LOS ANGELES (Aug.23) – The median price of an existing home in California in July increased 17.1 percent and sales increased 1.3 percent compared with the same period a year ago, the California Association of REALTORS® (C.A.R.) reported today.

“July’s increase in the median price of a home followed the trend we’ve experienced for most of this year,” said C.A.R. President Jim Hamilton. “Mortgage interest rates remain lower than a year ago and the inventory of homes for sale has improved slightly compared to the historic lows of 2004.

“Both the national and state economies are doing better than a year ago, and household incomes are improving,” he said. “These are all contributing to the continued strength of the housing market in California.”

Closed escrow sales of existing, single-family detached homes in California totaled 647,910 in July at a seasonally adjusted annualized rate, according to information collected by C.A.R. from more than 90 local REALTOR® associations statewide. Statewide home resale activity increased 1.3 percent from the 639,910 sales pace recorded in July 2004.

The statewide sales figure represents what the total number of homes sold during 2005 would be if sales maintained the July pace throughout the year. It is adjusted to account for seasonal factors that typically influence home sales.

The median price of an existing, single-family detached home in California during July 2005 was $540,900, a 17.1 percent increase over the revised $461,760 median for July 2004, C.A.R. reported. The July 2005 median price decreased 0.4 percent compared with June’s revised $543,120 median price.

“Year-to-date sales continue to outpace last year’s, but are moderating compared with the levels experienced earlier this year,” said C.A.R. Vice President and Chief Economist Leslie Appleton-Young. “This is in line with our expectation that sales in 2005 will be 1.4 percent ahead of last year’s record pace.

“Historically, June accounts for the largest share of annual sales and there typically is a month-to-month decline in sales from June to July in the regional and county sales figures, which are not seasonally adjusted,” she said.

Highlights of C.A.R.’s resale housing figures for July 2005:

. C.A.R.’s Unsold Inventory Index for existing, single-family detached homes in July 2005 was 3.2 months, compared with 2.4 months (revised) for the same period a year ago. The index indicates the number of months needed to deplete the supply of homes on the market at the current sales rate.

. Thirty-year fixed mortgage interest rates averaged 5.70 percent during July 2005, compared with 6.06 percent in July 2004, according to Freddie Mac. Adjustable mortgage interest rates averaged 4.40 percent in July 2005 compared with 4.11 percent in July 2004.

. The median number of days it took to sell a single-family home was 28 days in July 2005, compared with 24 days (revised) for the same period a year ago.

Regional MLS sales and price information is contained in the tables that accompany this press release. Regional sales data are not adjusted to account for seasonal factors that can influence home sales. The MLS median price and sales data for detached homes are generated from a survey of more than 90 associations of REALTORSâthroughout the state. MLS median price and sales data for condominiums are based on a survey of more than 60 associations. The median price for both detached homes and condominiums represents closed escrow sales.

In a separate report covering more localized statistics generated by C.A.R. and DataQuick Information Systems, 96.6 percent or 403 of 417 cities and communities showed an increase in their respective median home prices from a year ago. DataQuick statistics are based on county records data rather than MLS information. DataQuick Information Systems is a subsidiary of Vancouver-based MacDonald Dettwiler and Associates. (The top 10 lists are generated for incorporated cities with a minimum of 30 recorded sales in the month.)

Note: Large changes in local median home prices typically indicate both local home price appreciation, and often, large shifts in the composition of housing market activity. Some of the variations in median home prices may be exaggerated due to compositional changes in housing demand. The DataQuick tables listing median home prices in California cities and counties are accessible through C.A.R. Online at http://www.car.org/index.php?id=MzUzMTY=.

. Statewide, the 10 cities and communities with the highest median home prices in California during July 2005 were: Palos Verdes Estates, $1,640,000; Beverly Hills, $1,500,000; Los Altos, $1,480,000; Manhattan Beach, $1,450,000; Burlingame, $1,436,250; Laguna Beach, $1,376,500; Saratoga, $1,373,500; Calabasas, $1,295,000; La Canada-Flintridge, $1,250,000; Newport Beach, $1,225,000.

. Statewide, the 10 cities and communities with the greatest median home price increases in July 2005 compared with the same period a year ago were: Reedley, 89.4 percent; Palos Verdes Estates, 81.5 percent; Twentynine Palms, 74 percent; Sanger, 66.3 percent; Barstow, 60.9 percent; Desert Hot Springs, 55.5 percent; Rancho Mirage, 53.8 percent; Visalia, 50 percent; West Sacramento, 49.5 percent; Hesperia, 48.7 percent.

Leading the Way…® in California real estate for 100 years, the California Association of REALTORS® (www.car.org) is one of the largest state trade organizations in the United States, with more than 165,000 members dedicated to the advancement of professionalism in real estate. C.A.R. is headquartered in Los Angeles.