Monthly Archives: December 2010

December Conference Board’s Consumer Confidence Index

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NAROFF ECONOMIC ADVISORS, Inc.

Joel L. Naroff

President and Chief Economist

 

INDICATOR: December Conference Board’s Consumer Confidence Index

KEY DATA: Confidence:  52.5 (down 1.8 points); Present Situation: 23.5 (down 1.9 points); Expectations: 71.9 (down 1.4 points)

IN A NUTSHELL:   “People are saying they are still worried but acting differently as they have hit the malls pretty hard.”  

WHAT IT MEANS:  The sluggish recovery is the result of consumers holding tightly to their hard earned dollars.  All the reports seem to indicate they have begun to blow the dust out of their wallets and are spending more.  Strangely, though, that attitude has yet to translate into rising consumer confidence.  The Conference Board’s December reading of household perceptions was down, surprisingly.  People are less confident about the current economy and future opportunities.  They are still quite worried about where the labor market is going and that is not good news because a smaller percentage of the respondents think their incomes will rise next year. Jobs are still issue number one and as long as the labor market remains less than stellar, workers will be concerned about their job security.  An additional reason for the continued uncertainty is the housing market.  The S&P/Case-Shiller October numbers came out today and they were disappointing.  Prices fell everywhere and eighteen of the twenty large metropolitan areas had a deceleration in their price gains.  Indeed, for the first time since January, the twenty-city index was down on a year-over-year basis.  Foreclosures continue to pressure the market and that is not going to change anytime soon.  With some much of their wealth tied up in housing, home price declines can only hurt perceptions of the world.  Stability would be nice but we have to stop falling before we can start rising and I am not sure there are lots of places across the nation where housing price increases are being recorded. 

MARKETS AND FED POLICY IMPLICATIONS: The data today were disappointing.  Declining housing prices only feed the uncertain beast that is the consumer.  But we also have had news that the holiday shopping season was quite good.  So, should we listen to what consumers’ say or watch what they do?   To me, the proof is in the doing and I am not so certain we should take too much away from the decline in the confidence index.  If that is repeated in January, yes, it might be time to redo the forecast.  But I have been marking my numbers up recently and for good reason: Most of the other data have been solid!  Unfortunately for investors, there is not a whole lot of important data coming out the rest of the week so they will have to make end of the year judgments on these numbers.  I suspect traders will probably close up shop and watch and wait until next week.

November Existing Home Sales

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NAROFF ECONOMIC ADVISORS, Inc.

Joel L. Naroff

President and Chief Economist

 

INDICATOR: November Existing Home Sales

KEY DATA: Sales: +5.6%; 1-Family: +6.7%; Condos: -1.9%  

IN A NUTSHELL:   “The housing markets upward climb from the depths of depression is continuing.”  

WHAT IT MEANS:   The housing market is coming back!  Okay, that is saying way too much about a sector that is still hurting.  Nevertheless, the direction is up and that is good.  Existing home sales rose in November, according to the National Association of Realtors.  Yes, I know, the sales pace remains pathetic but everything is relative.  Since hitting rock bottom in July, a consequence of the government’s home buyers’ credits disappearing, demand has steadily improved.  Most of the gain came in the single-family portion of the market.  Condo and coop purchases have improved modestly.  Looking across the nation, while every region posted an increase, the Midwest and West shined the most.  As for prices, they firmed but mostly in the Northeast.  With inventory declining, we could see prices rise slowly going forward. 

MARKETS AND FED POLICY IMPLICATIONS: Yes, Virginia, there is a housing market.  No, it is not a robust, economy leader but it is turning around.  Housing starts seem to be edging upward and now we see that existing home sales are on a clear improving trend.  Mortgage rates are still quite low even with the recent pop and that rise will likely hurt refinancings more than new purchases.  That, indeed, is what the Mortgage Bankers Association weekly applications data seem to be indicating.  The rates remain great on an historical basis and should hot stop too many sales.  The problem is more with equity and credit availability.  With prices so low and appraisals using many fire sale comparables, it is hard to get much money from a home.   Lacking equity, it’s tough to move and without people trading up or down, demand is limited.  That not only hurts the housing market but also affects labor mobility.  While another housing bubble would not be a good idea, some decent increases in home prices would be a great help.  Despite the depressed levels, investors should look at this report as a sign that housing could add somewhat to growth going forward.  As for the Fed, the members have hung their bond purchases on the economy with care, hoping a robust recovery will soon appear.  They will likely get that upturn, but not because of QE2.

November Income and Spending

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NAROFF ECONOMIC ADVISORS, Inc.

Joel L. Naroff

President and Chief Economist

 

INDICATOR: November Income and Spending

KEY DATA: Consumption: +0.4%; Disposable Personal Income: +0.3%;

IN A NUTSHELL:   “Households may not be shopping ‘till they drop but they are out there buying and that steady, solid pace is sustainable.” 

WHAT IT MEANS:  Bubbles are nice when they are made of glass and hung on trees.  They are not a lot of fun when they cause huge ups and downs in the economy.  That is why I have said on many occasions that I look for consumers to shop ‘till they’re tired not until they drop and that seems to be the case.  Consumption rose for the fifth consecutive month in November and while the pace was not spectacular, it was solid enough.  People bought the little things that make them happy as soft-goods and services spending rose.  They didn’t go out and buy big-ticket items, which were down slightly, but that is okay.  The concentration on the smaller ticket goods is the first step in the spending recovery.  Once job growth picks up, I expect durable goods purchases to rise more strongly.  Nevertheless, with the October spending pace revised upward and the reports of a strong December shopping period flowing in, I would not be surprised if consumer spending grows at a robust 4% or more pace in the fourth quarter.  That would lead to faster than currently projected GDP growth.  While income gains did not keep up with outflows of money, the savings rate is still at a decent 5.3% level.   The one disappointment in the report was the gain in wages and salaries.  This part of income had been increasing solidly but the November rise was less than hoped for.  Still, this component has been somewhat volatile so I wouldn’t be surprised if it bounces back in December. Indeed, the slow decline in unemployment claims tells me the labor market is continuing to firm.      

MARKETS AND FED POLICY IMPLICATIONS: The consumer is back, maybe not in full battle regalia, but households are buying goods strongly again.  The pace of spending is sustainable and as job gains and confidence improve I expect consumption to increase as well.  What we don’t see in this report are irresponsible households that are destroying their balance sheets.  The savings rate is still high enough to allow for a reduction in debt burdens.  Basically, the household sector is doing its part in driving the recovery and with businesses spending on capital goods, as we saw in the durable goods report, the upturn has clearly moved from the government to the private sector.  That is the best news we could have as we close 2010.

Choosing The Right Listing Agreement

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 When listing your home with a REALTOR®, you will be required to sign an agreement.  This document will outline all of the agreed upon terms, including the asking price of the property, the REALTOR’S® commission, length of the agreement, cancellation policy (if any) and other details that will govern how the listing is handled.  As a homeowner, it’s important to choose the right listing agreement to fit your needs.

Evaluate Your Options

When you decide to sell your home, talk with several different REALTORS®.  Speak with them over the phone, meet with them in person, ask for references or do anything that you can to get a feel for how they do business.  In real estate, punctuality is a must.  The REALTOR® that you choose should return your calls, answer your questions and should provide a listing agreement that coincides with any verbal agreements that you may have had regarding the listing.  For instance, if you tell your REALTOR® that you only want to list your property for six months, make sure the listing agreement reflects six months and not one year or longer.  In addition, make sure that your asking price is the same in the agreement as you agreed upon in earlier discussions.

Exclusive Right-To-Sell Real Estate Agreement

This contract is the most common in the real estate industry.  With this agreement, the REALTOR® will earn a commission regardless of whether they sell the house or you sell the house yourself.  Always make sure you understand what you are signing. 

Open Real Estate Listing Agreement

This type of contract allows a homeowner to list with more than one REALTOR® in a non-exclusive manner.  The agent responsible for presenting a buyer who purchases the property will receive the commission, which means REALTORS® will compete to see who can sell the house first.  If the owner eventually sells the home without the help of a REALTOR®, they are not required to pay anyone a commission.  An Open Listing Agreement is not common with REALTORS®, but it is one option to consider.

Exclusive Real Estate Agency Listing

This type of agreement requires that the homeowner list their property with only one real estate agency.  Unlike an Open Listing Agreement, where the homeowner can list their property with multiple REALTORS®, an Exclusive Agency Listing entails only one agency being granted permission to list the home.

Read The Fine Print

Before signing any type of contract, homeowners must read over every detail to ensure that it represents the full agreement between themselves and their REALTOR®.  Some things to consider include the length of the contract.  Some REALTORS® prefer to have a minimum of one year to list a property, but the homeowner will have the option to negotiate.  Some owners prefer a shorter term, such as one to six months.

Every real estate contract should outline a cancellation policy, which will provide details surrounding a release and/or fees and penalties.  Some agents will offer a cancellation policy that allows the homeowner to cancel the contract by providing a 30-day written notice at any time.
Re/Max Connection Realtors disclaimer:
Re/Max Connection Realtors are not licensed financial advisors, and are not providing any financial advise, you should consult with a licensed financial advisor prior to making any financial decisions. Re/Max Connection Realtors are only providing this economic statement from Naroff Economic Advisors, Inc. for informational purposes.
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