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August 2008 Newsletter

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San Diego home price trends

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Wall Street news

Wall Street advances thanks to a strong economic report. Investors set aside worries about surging oil prices, even as Gustav heads for the Gulf Coast.

By Alexandra Twin, CNNMoney.com senior writer

Last Updated: August 27, 2008: 5:50 PM EDT

NEW YORK (CNNMoney.com) -- Stocks rallied Wednesday, with financial services companies among the big gainers, as investors shrugged off higher oil prices and instead focused on a surprisingly strong reading on durable goods orders.

The Dow Jones industrial average (INDU) and the broader Standard & Poor's 500 (SPX) index both added around 0.8%. The Nasdaq composite (COMP) gained 0.9%.

Investors also seemed to breathe a sigh of relief that oil prices gave up bigger session gains. Oil had spiked in the morning after a weak inventory report and in response to Tropical Storm Gustav, which is heading for the Gulf Coast.

The rise in durable goods orders was making investors feel a bit more positive about the economic outlook, said Gary Webb, CEO at Webb Financial Group. Additionally, comments from Fed officials both this morning and in recent days have implied that inflationary pressures are waning and that the central bank won't have to raise rates in the near term.

However, stocks are extremely volatile and the perception of "good news" could change swiftly, he said.

"So today the good news is outweighing the bad and that's helping people overlook oil prices," Webb said. "But this could all change by tomorrow or even the end of the day."

Stocks had rallied between mid-July and mid-August as investors welcomed a drop in crude oil prices from a record over $147 a barrel, and a recovery in the U.S. dollar.

However, in the last week or so, stocks have been struggling in a narrow range as oil prices have moved back up.

Thin trading volume is also adding to market volatility right now, with many Wall Street pros taking the last week of August off. Thursday was the lightest trading day of the year on the New York Stock Exchange, with just 820 million shares changing hands. Volume on the NYSE was 1.58 billion, also low. On both the NYSE and the Nasdaq, market breadth was positive, with advancers topping decliners by a decided margin.

Both trading volume and the attention of investors will pick up after Labor Day weekend, said Bill Flaig, portfolio manager of the Arrow Alternative Solutions Fund (ASFFX).

"Post-Labor Day, there's going to be a lot of focus on the economic news," Flaig said. In particular, investors will be looking to see if the downward trend in weekly jobless claims continues and how well retailers are holding up despite the end of the government stimulus checks.

That, in combination with a "gut check" over the financial services sector is really going to set the tone for September, he said.

Fannie Mae was among the stocks likely to be active Thursday after the company announced late Wednesday the departure of three executives, including the chief financial officer and the promotion of three other executives. (Full story)

Thursday also brings reports on second-quarter gross domestic product growth and weekly jobless claims.

Durable goods orders: Orders for big-ticket manufactured goods jumped for a second straight month, the government reported Wednesday. Orders rose 1.3% in July, easily outpacing the 0.1% gain economists were expecting, on average. The rise was in line with the upwardly revised 1.3% increase reported in June.

The strength was largely due to a rise in demand for commercial aircraft, as well as for motor vehicles. Experts don't expect demand for autos to stay strong, considering the tough industry conditions. A category of the report seen as a proxy for business spending also rose soundly, seeing its best result in three months. (Full story).

Fuel prices: While the strong durables report was a positive, investors remained concerned about the spike in oil prices as Tropical Storm Gustav neared the Gulf of Mexico and U.S. oil facilities.

Investors also took in the weekly inventory report, which showed a surprise drop in crude supplies and a bigger-than-expected decline in gas supplies. (Full story).

U.S. light crude oil for October delivery rose $1.88 to settle at $118.15 a barrel on the New York Mercantile Exchange, giving up bigger morning gains.

Retail gas prices continued to drop overnight, extending the downward trend, according to a survey of gas station credit-card activity. Gas prices are down over 10% from all-time highs hit in mid-July. (Full story.)

Financials: Shares of Fannie Mae (FNM, Fortune 500) and Freddie Mac (FRE, Fortune 500) gained for the third-straight session, as analysts questioned whether a government bailout was unavoidable. Freddie's $2 billion debt sale Monday received a positive response and some analysts think the companies may have enough capital to absorb billions of dollars in losses from bad mortgage bets, at least for the near term.

A number of financial shares rose, including Dow components AIG (AIG, Fortune 500), American Express (AXP, Fortune 500), Bank of America (BAC, Fortune 500), Citigroup (C, Fortune 500) and JP Morgan Chase (JPM, Fortune 500).

The gains were broad based, with 25 of 30 Dow components rising.

Airline stocks got hammered as oil prices rose, with air carriers' profits taking a direct hit from the rise in fuel costs. Delta Air Lines (DAL, Fortune 500), AMR (AMR, Fortune 500), Northwest Airlines (NWA, Fortune 500) and UAL Corp (UAUA, Fortune 500) all tumbled. The Amex Airline (XAL) index dropped 3%.

The rising oil prices gave a lift to oil stocks, including Valero Energy (VLO, Fortune 500), Exxon Mobil (XOM, Fortune 500) and Sunoco (SUN, Fortune 500).

In merger news, Japan's Ricoh, a copier and printer maker, will buy U.S. office-gear distributor Ikon Office Solutions (IKN).

Fed's Lockhart: In a speech Wednesday morning, the Atlanta Fed President discussed the Consumer Price Index, one of the closely watched measures of consumer inflation. He said the latest CPI was a high and worrisome number but that it is more likely to be transitory than persistent, according to reports.

Lockhart also said that the recent rise in the dollar has been helpful. The recent strength in the currency has put pressure on dollar-traded commodities, such as oil and gold.

Other markets: In the bond market, Treasury prices inched higher, lowering the yield on the benchmark 10-year note to 3.76% from 3.77% late Tuesday. Prices and yields move in opposite directions.

The dollar was little changed versus the euro and the yen.

COMEX gold for October delivery rose $4.50 to $828.70 an ounce.

Pending home sales

Home Sales May Rise Modestly Before Broader Upturn in Second Half Of 2008

Source: Walter Molony, National Association of Realtorsr

WASHINGTON, June 09, 2008

A modest gain in the level of home sales is possible over the next couple months, and an improvement is forecast for the second half of this year as more buyers are able to access affordable mortgages, according to the latest forecast by the National Association of Realtors^®.

The Pending Home Sales Index,* a forward-looking indicator based on contracts signed in April, rose 6.3 percent to 88.2 from a reading of 83.0 in March. It’s the highest index since last October, but remains 13.1 percent lower than April 2007 when it stood at 101.5.

Lawrence Yun, NAR chief economist, said pending sales contracts have picked up notably in areas undergoing significant price drops. “Bargain hunters have entered the market en masse, especially in areas that have experienced double-digit price declines, but it’s unclear if they are investors or owner-occupants,” he said. “Sharp price reductions are leading to a quicker discovery of price equilibrium points. The West is already seeing year-over-year gains in pending contracts.”

The PHSI in the West rose 8.3 percent to 98.8 in April and is 4.0 percent higher than April 2007. In the Midwest, the index jumped 13.0 percent to 83.7 in April but remains 13.1 percent below a year ago. The index in the South increased 4.6 percent to 88.8 but is 22.5 percent below April 2007. In the Northeast, the index declined 1.9 percent in April to 79.3 and is 12.2 percent below a year ago.

NAR President Richard F. Gaylord, a broker with RE/MAX Real Estate Specialists in Long Beach, Calif., said the market may be breaking its holding pattern. “It appears that more buyers are realizing they can take advantage of a favorable combination of mortgage interest rates, home prices and family income,” he said. “Overall affordability conditions are the best we’ve seen since the middle of the housing boom in 2004, but with far more choices and much less pressure than buyers experienced four years ago to make an investment in their future. Recent declines in mortgage rates on conforming jumbo loans and a return to sound but not overly stringent underwriting standards will permit more people to qualify for a loan.”

NAR’s housing affordability index has been trending up this year and is projected to rise 15 percentage points to 128.0 for all of 2008.

“Although mortgage interest rates will remain historically favorable, they will start to steadily inch up,” Yun said. The 30-year fixed-rate mortgage should rise gradually to 6.3 percent by the end of this year, and then hold at that level for most of 2009.

Yun said the underlying fundamentals point to a pent-up demand. “Home sales are at about the same level as they were 10 years ago, yet the population has grown by 25 million people and we have over 10 million more jobs,” he said. “The housing market has been underperforming by historical standards, partly because buyers were hampered by mortgage availability issues, but that’s improved and an upturn is more likely. On the other hand, it’s unclear what role consumer confidence will play in the coming months.”

Existing-home sales should increase from an annual pace of 5.05 million in the second quarter to 5.83 million in the fourth quarter. For all of this year, existing-home sales are expected to total 5.40 million, and then rise 6.3 percent to 5.74 million in 2009. “Sales gains will be greatest in areas that underwent sharp price declines,” Yun said.

After unprecedented home price declines in the first half of the year, many markets can anticipate stabilizing price trends in the second half. The aggregate median existing-home price is likely to decline 8.4 percent in the first half of this year, and then begin to stabilize in the second half before rising 4.4 percent next year to $213,900. “Policymakers need to be attentive to the fact that many homeowners have seen a reduction in housing equity, or are in an ‘underwater’ situation. More needs to be done on the policy front to alleviate hardships and bring fence-sitters back into the marketplace,” Yun said.

A great mix of conditions continues around the country. “We’re seeing healthy price gains in moderately priced areas like Erie, Pa., and Corpus Christi, Texas, and double-digit gains in others,” Yun said. “Our most recent data shows sales rising strongly from a year ago in some areas that experienced sharp price drops, including Detroit and Las Vegas.”

New-home sales will probably fall 31.7 percent to 529,000 in 2008 before rising 12.5 percent to 595,000 next year. Housing starts, including multifamily units, are projected to drop 27.2 percent to 987,000 this year, and then slip 0.6 percent to 980,000 in 2009.

“Rising construction costs will provide less room for price cuts on new homes,” Yun said. The median new-home price is forecast to decline 3.1 percent to $239,500 in 2008, and then rise 5.4 percent next year to $252,400.

Yun sees an improving economy. Growth in the U.S. gross domestic product (GDP) should be 1.7 percent in 2008 and 2.0 percent next year. The unemployment rate is estimated to average 5.3 percent this year and 5.6 percent in 2009.

Inflation, as measured by the Consumer Price Index, is expected to be 3.6 percent this year and 2.4 percent in 2009. Inflation-adjusted disposable personal income should grow 1.4 percent in 2008 and 2.5 percent next year.

The National Association of Realtors^®, “The Voice for Real Estate,” is America’s largest trade association, representing 1.2 million members involved in all aspects of the residential and commercial real estate industries.

# # #

*The Pending Home Sales Index is a leading indicator for the housing sector, based on pending sales of existing homes. A sale is listed as pending when the contract has been signed but the transaction has not closed, though the sale usually is finalized within one or two months of signing.

The index is based on a large national sample, typically representing about 20 percent of transactions for existing-home sales. In developing the model for the index, it was demonstrated that the level of monthly sales-contract activity from 2001 through 2004 parallels the level of closed existing-home sales in the following two months. There is a closer relationship between annual index changes (from the same month a year earlier) and year-ago changes in sales performance than with month-to-month comparisons.

An index of 100 is equal to the average level of contract activity during 2001, which was the first year to be examined as well as the first of five consecutive record years for existing-home sales. View

Existing-home sales for May will be released June 26; the next Forecast / Pending Home Sales Index will be released July 8.

San Diego home prices for August 2008

Wall Street news

Pending home sales

U.S. economic highlights

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U.S. economic highlights

Released: Thursday, June 19, 2008

Source: The Conference Board

The Conference Board announced today that the U.S. leading index increased 0.1 percent, the coincident index increased 0.1 percent and the lagging index increased 0.2 percent in May.

The leading index increased slightly in May, following a small increase in April. The interest rate spread and stock prices continued to make large positive contributions to the index, more than offsetting May's declines in real money supply, consumer expectations, and building permits. In May, the six-month rate of decline in the leading index slowed to -0.7 percent (a -1.4 percent annual rate), from -2.4 percent (a -4.7 percent annual rate) in the six-month period through January. However, the weaknesses among the leading indicators have remained fairly widespread in recent months.
The coincident index also increased slightly in May, the first increase in seven months, and the index was revised down modestly for March and April as new component data became available. The growth rate of the coincident index stands at -0.4 percent (a -0.7 percent annual rate) in the six-month period though May, down from 0.3 percent (a 0.6 percent annual rate) from July 2007 to January 2008, and the weaknesses among its components have remained widespread in recent months. The lagging index increased this month, and the coincident to lagging ratio has continued to decline.
The leading index has risen in the past two months, following a steady decline that began in the middle of last year. However, the number of components that are falling continues to be greater than the number of components that are rising over the past six months. Meanwhile, the coincident index has decreased modestly in recent months, after rising steadily for the most part of 2006 and through late 2007. Real GDP expanded at an average annual rate of 0.7 percent for the first quarter of 2008 and the fourth quarter of 2007, down from an average annual rate of 4.4 percent for the previous two quarters. Taken together, the behavior of the composite indexes so far continues to suggest weak economic activity in the near term.

LEADING INDICATORS. Four of the ten indicators that make up the leading index increased in May. The positive contributors — beginning with the largest positive contributor — were the interest rate spread, stock prices, manufacturers' new orders for consumer goods and materials*, and manufacturers' new orders for nondefense capital goods*. The negative contributors — beginning with the largest negative contributor — were real money supply*, index of consumer expectations, building permits, index of supplier deliveries (vendor performance), and average weekly initial claims for unemployment insurance (inverted). Average weekly manufacturing hours held steady in May.

The leading index now stands at 102.1 (2004=100). Based on revised data, this index increased 0.1 percent in April and remained unchanged in March. During the six-month span through May, the leading index decreased 0.7 percent, with three out of ten components advancing (diffusion index, six-month span equals 30 percent).

COINCIDENT INDICATORS. Two of the four indicators that make up the coincident index increased in May. The positive contributors to the index — beginning with the larger positive contributor — were personal income less transfer payments* and manufacturing and trade sales*. The negative contributors were industrial production and employees on nonagricultural payrolls.

The coincident index now stands at 106.8 (2004=100). This index decreased 0.1 percent in April and decreased 0.1 percent in March. During the six-month period through May, the coincident index decreased 0.4 percent.

LAGGING INDICATORS. The lagging index stands at 112.4 (2004=100) in May, with four of the seven components advancing. The positive contributors to the index — beginning with the largest positive contributor — were average duration of unemployment (inverted), change in CPI for services, ratio of manufacturing and trade inventories to sales*, and ratio of consumer installment credit to personal income*. The negative contributors — beginning with the largest negative contributor — were commercial and industrial loans outstanding*, average prime rate charged by banks, and change in labor cost per unit of output*. Based on revised data, the lagging index remained unchanged in April and increased 0.4 percent in March.

DATA AVAILABILITY AND NOTES.

The data series used by The Conference Board to compute the three composite indexes and reported in the tables in this release are those available "as of" 12 Noon on June 17, 2008. Some series are estimated as noted below.

* Series in the leading index that are based on The Conference Board estimates are manufacturers' new orders for consumer goods and materials, manufacturers' new orders for nondefense capital goods, and the personal consumption expenditure used to deflate the money supply. Series in the coincident index that are based on The Conference Board estimates are personal income less transfer payments and manufacturing and trade sales. Series in the lagging index that are based on The Conference Board estimates are inventories to sales ratio, consumer installment credit to income ratio, change in labor cost per unit of output, the consumer price index, and the personal consumption expenditure used to deflate commercial and industrial loans outstanding.

The procedure used to estimate the current month's personal consumption expenditure deflator (used in the calculation of real money supply and commercial and industrial loans outstanding) now incorporates the current month's consumer price index when it is available before the release of the U.S. Leading Economic Indicators.

The next release is scheduled for Monday, July 21 at 10:00 AM ET.

Professional Contacts at The Conference Board:
Ken Goldstein: 212-339-0331
Indicators Program: 212-339-0330

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