Monthly Archives: September 2011

August New Home Sales

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NAROFF ECONOMIC ADVISORS, Inc.
Joel L. Naroff
President and Chief Economist

INDICATOR: August New Home Sales
KEY DATA: Sales: 295,000 unit annualized (down 2.3%): Median Prices (8 ’10-8 ’11): -7.7%

IN A NUTSHELL: “Builders are not building, supply is falling, distressed homes are too cheaply priced and it is difficult to get a mortgage and people are surprised that housing sales are going nowhere?”

WHAT IT MEANS: It would be nice if housing sales pick up but it didn’t happen in August, at least for new homes. Exiting house sales did improve and that is indeed the issue for builders. With so many distressed houses on the market selling for such low costs, frequently below replacement cost, it is extremely difficult for developers to compete. To do that, they have to down sell and that is what is happening. Forty seven percent of the newly built homes sold went for less than $200,000. The sales decline in August was propelled by a sharp cut back in the Northeast and West and a more moderate decline in the South. The Midwest posted a solid increase. Prices are falling but that probably reflects the need to build smaller, less luxurious and less costly homes in order to match the homes that are on the market.

MARKETS AND FED POLICY IMPLICATIONS: The new home market is in the dumps and there is little reason to think it can right itself anytime soon. The problems are huge: Distressed houses are selling for prices that are at times impossible to match, appraisals are difficult because comparables are often distressed houses, many households don’t have much or equity any left in their homes so they cannot trade up or down to a new house and financial institutions are cautious in their lending, partly due to regulatory issues. We are going to have to get used to a slowly improving market at best. That does not bode well for the economy or jobs as this sector generates so many new positions. Indeed, the housing and credit issues seen here are a clear indicator of why this recovery always was going to be and for a while will continue to be disappointing. Anyone who says we can have a strong recovery without housing is missing the point. But we can have a recovery anyway; it’s just that it will not live up to hopes or expectations. Since it is doubtful the overhang of distressed houses will be alleviated anytime soon and housing construction will not soar until that happens, we need to get used to what the economy is capable of and that, unfortunately, is only moderate growth.
Re/Max Connection Realtors disclaimer:
Re/Max Connection Realtors are not licensed financial advisors, and are not providing any financial advice, 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.
Our company accepts no liability for the content of this email/blog, or for the consequences of any actions taken on the basis of the information provided. Any views or opinions presented in this email/blog are solely those of the author and do not necessarily represent those of the company. Finally, the recipient should check this email and any attachments for the presence of viruses. The company accepts no liability for any damage caused by any virus transmitted by this email.
Re/Max Connection Realtors, 1000 East Lincoln Drive, Suite 2, Marlton, NJ 08053 www.goconnectionnj.com

September 21, 2011 FOMC Decision

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NAROFF ECONOMIC ADVISORS, Inc.
Joel L. Naroff
President and Chief Economist

September 21, 2011 FOMC Decision

“To support a stronger economic recovery and to help ensure that inflation, over time, is at levels consistent with the dual mandate, the Committee decided today to extend the average maturity of its holdings of securities.”

Rate Decision: Fed funds rate maintained at a range between 0% and 0.25%

The FOMC met today and announced it would drive down longer term rates. With the economy recovering slowly and with “significant downside risks to the economic outlook, including strains in global financial markets”, it was deemed necessary to do a lot more than had already been done. Indeed, the size of the program, $400 billion of purchases of assets with maturities of six years or longer offset by sales of assets with maturities of three years or less, is somewhat greater than expected. But given the warning that the modest recovery could get worse, a large program made sense. You either go all in at this point or fold your cards and the Mr. Bernanke has gone all in.

Will this so-called “operation twist” work? Clearly, the emphasis on driving down longer term rates is an attempt to get mortgage borrowing and capital spending going a lot faster. But businesses are flush with cash already and it isn’t rates that are stopping them from hiring or investing more. Companies are just uncertain about the direction of the economy and demand is not growing fast enough to require greater job growth. Households are reducing their debt, not adding to it, and as we saw from today’s National Association of Realtors existing home sales report, failed contracts are growing. That is more an issue of appraisals and cautious lending practices than rate levels.

Where this will work is in the refinancing sphere. If you can get the refinancing done, the additional cash flow will help both consumer and business spending. On the mortgage side, the lowering of rates coupled with the Fed’s decisions to “reinvest principal payments from its holdings of agency debt and agency mortgage-backed securities in agency mortgage-backed securities” should drive down mortgage rates to levels that will entice an awful lot of potential buyers and refinancers. Again, with the issue being appraisals not rates, this may not work that well but you have to give then kudos for trying to help the housing market.

Looking outward, once confidence returns, the lower rates, which should continue well into 2013, will become a major positive. As the economy improves and the desire to borrow grows, the extraordinary low rates will likely lead to rapid increases in borrowing. But that is likely to be in the future, not in the next six months. And it is that potentially strong growth in borrowing that presents the risk of inflation ramping up. But again, that is not right now.

The Fed is in a tough position. Fiscal policy is becoming more restrictive just as the risks to a disappointing recovery from Europe ramp up. The Fed Chairman is betting that any future (2 years or more down the road) inflation pressures can be handled. Instead, Mr. Bernanke wants to do whatever he can to prevent a double-dip. Given the state of confidence and the political gridlock, I believe the risks are worth taking even though three members of the FOMC differed and cast dissenting votes.

One final comment: Politicians of all stripes are taking shots at the Fed. That is their right but it shouldn’t be happening. You cannot say that the recovery is too weak and jobs have to be created and then do nothing, especially if there are dark clouds out there that could rain on the limping parade. Demanding that the Fed to “don’t just do something, stand there” is not reasonable and probably self defeating. The last thing a Fed Chair wants to be perceived as being is intimidated by politicians. An independent Fed, even a wrong-headed Fed, is a lot better than a politically driven Fed and you can be sure that this and every other Fed has not been politically driven.

Re/Max Connection Realtors disclaimer:
Re/Max Connection Realtors are not licensed financial advisors, and are not providing any financial advice, 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.
Our company accepts no liability for the content of this email/blog, or for the consequences of any actions taken on the basis of the information provided. Any views or opinions presented in this email/blog are solely those of the author and do not necessarily represent those of the company. Finally, the recipient should check this email and any attachments for the presence of viruses. The company accepts no liability for any damage caused by any virus transmitted by this email.
Re/Max Connection Realtors, 1000 East Lincoln Drive, Suite 2, Marlton, NJ 08053 www.goconnectionnj.com

August Existing Home Sales

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NAROFF ECONOMIC ADVISORS, Inc.
Joel L. Naroff
President and Chief Economist

INDICATOR: August Existing Home Sales
KEY DATA: Sales: +7.7%; 1-Family: 8.5%; Condos: 1.8%; Median Price (from 8 ’10)): -5.1%

IN A NUTSHELL: “The housing market is not robust but the rise in existing home sales shows we shouldn’t simply dismiss it.”

WHAT IT MEANS: Wonder of wonders, miracles of miracles, housing sales actually rose solidly in August. Granted the level is still nothing to make realtors smile, but improvement is not something to make light of. The sales rate was the highest since March, a period when confidence was rising and the job market was improving. The biggest gain was in the single-family segment as condo sales rose more slowly. Investors are a large part of the improvement as the large overhang of distressed homes is creating a lot of opportunity, especially for those with case. The sales of these properties accounted for 31% of the total, according to the National Association of Realtors. One of the big impediments to getting sales to really pick up is the mortgage/appraisal process. The Realtors said that 18% of the contracts failed because of low appraisals. That is likely the reason for the rising share of all purchases being distressed homes. It’s hard to get a decent appraisal for a “normal” property if the competition is a foreclosed home. Indeed, the sharp decline in prices over the year may be due to the shifting of the market into distressed homes. Geographically, all regions were up but there was a huge rise in the West. That came after a large decline in July so when you average the two months, the West is really not having a sudden return to happy days again.

MARKETS AND FED POLICY IMPLICATIONS: This was a good report as sales rose. But it also showed the problems the housing sector is facing. As long as non-distress homes have to compete with so many distressed homes, the mortgage process will restrain sales. You just cannot get a mortgage even if the comparables are just not comparable. That is a glitch in the system that it seems no one wants to touch but it is real and an issue. The rising share of distressed homes also points out the problems of prices, which everyone likes to look at. As the distribution gets skewed toward these lower priced homes, the price measure will be depressed. This report will likely be a tree falling in the forest as the FOMC is meeting and that is the focus of everyone’s attention, at least today. Despite the growing criticism of the Fed, the Committee is going to do what it thinks it should do, not what politicians think should be done. And that is the role of the Fed: To be an independent rudder to an economy that is too often driven adrift by the politics of fiscal policy. If leaning against the wind sometimes gets difficult, so be it. I have been critical of the Fed in the past and I certainly will be critical of it in the future but the members are non-political and above reproach. It is crucial that we support an independent Fed. Think of the messes we would get into if the politicians ran both fiscal and monetary policy.

Re/Max Connection Realtors disclaimer:
Re/Max Connection Realtors are not licensed financial advisors, and are not providing any financial advice, 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.
Our company accepts no liability for the content of this email/blog, or for the consequences of any actions taken on the basis of the information provided. Any views or opinions presented in this email/blog are solely those of the author and do not necessarily represent those of the company. Finally, the recipient should check this email and any attachments for the presence of viruses. The company accepts no liability for any damage caused by any virus transmitted by this email.
Re/Max Connection Realtors, 1000 East Lincoln Drive, Suite 2, Marlton, NJ 08053 www.goconnectionnj.com

Amendments to the Bulk Sale Law

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Please be advised that amendments to the Bulk Sale Law were signed into law by Governor Christie on Wednesday, September 14. Enacted as chapter 124 of the Public Laws of 2011, the amendments exempt certain transfers from the bulk sale notification requirements. While not a title insurance issue, it is important that closing attorneys and settlement agents be aware of this change.

Under the law as amended, the bulk sale notification requirements of N.J.S.A. 54:50-38 will not apply to “… the sale, transfer or assignment of a simple dwelling house if the seller, transferrer (sic) or assignor is an “individual”, “estate” or “trust” …” For purposes of this law, a “simple dwelling house” is defined as a one-family or two-family dwelling unit including cooperatives and condominium units.

The amended law also exempts the sale, transfer or assignment of a “seasonal rental unit”, again if the seller is an individual, estate or trust. A “seasonal rental unit” for purposes of this law is a timeshare estate (N.J.S.A. 45:15-16.51) or a dwelling unit rented for a term of not more than 125 consecutive days for residential purposes by a person having a permanent residence elsewhere

This exemption extends only to sellers who are individuals, estates or trusts (as those terms are used for purposes of the “New Jersey Gross Income Tax Act” – N.J.S.A. 54A:1-1 et seq.) and does not extend to sellers who are “business entities” which include but are not limited to corporations or partnerships.

The law takes effect immediately and applies retroactively to sales, transfers and assignments on or after August 1, 2007.

As always, should you have any questions or require any further assistance or information, please do not hesitate to contact a member of our underwriting staff.

Re/Max Connection Realtors disclaimer:
Re/Max Connection Realtors are not licensed financial advisors, and are not providing any financial advice, 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.
Our company accepts no liability for the content of this email/blog, or for the consequences of any actions taken on the basis of the information provided. Any views or opinions presented in this email/blog are solely those of the author and do not necessarily represent those of the company. Finally, the recipient should check this email and any attachments for the presence of viruses. The company accepts no liability for any damage caused by any virus transmitted by this email.
Re/Max Connection Realtors, 1000 East Lincoln Drive, Suite 2, Marlton, NJ 08053 www.goconnectionnj.com

Home Safety Tips

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Home Safety Tips

Your home is your haven and, as such, it should be a place where you feel safe. If you want to protect yourself and your family, home safety should be a priority in your life. Here are some ideas on how to deal with some of the most common concerns facing homeowners today.

Do Some Detective Work On Your Detectors

Make sure that your smoke detectors are working and have fresh batteries. It’s important to clean them regularly to avoid a buildup of dust and dirt, which may cause them to malfunction or stop working altogether.

Make Sure That Your Security System Is Secure

If your home has a security system, make sure that nobody else has the code. If you purchased your home with the security system in place, have the code changed as a precaution. Just as you would change the locks to prevent friends, acquaintances or family members of the previous owner from entering the house without your permission or knowledge, it’s equally important to change the code on your security system.

Obstacles & Falls

Many people die or get injured each year as a result of a fall in their home. Make sure that the way you arrange your furniture and possessions makes it easy for you to move around your home. Be especially careful about where you put low items that you may trip over.

Trailing electric and phone wires can also be hazardous—try to connect appliances to a socket nearby. If trailing wires are unavoidable, arrange them as far out of the way as possible and tape them down with strong electrical tape or something similar.

Keep staircases and passageways clear, and never place a loose rug at the top of the stairs.

Try to organize your storage so that you can reach items you use regularly without having to climb. Don’t be tempted to balance on chairs or boxes if you do need to reach something high—use a proper step ladder with non-slip steps, or wait until someone else can help.

Re/Max Connection Realtors disclaimer:
Re/Max Connection Realtors are not licensed financial advisors, and are not providing any financial advice, 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.
Our company accepts no liability for the content of this email/blog, or for the consequences of any actions taken on the basis of the information provided. Any views or opinions presented in this email/blog are solely those of the author and do not necessarily represent those of the company. Finally, the recipient should check this email and any attachments for the presence of viruses. The company accepts no liability for any damage caused by any virus transmitted by this email.
Re/Max Connection Realtors, 1000 East Lincoln Drive, Suite 2, Marlton, NJ 08053 www.goconnectionnj.com