Spring is well on its way and thankfully it seems home buyers in Portland Maine have decided to come back with a vengeance. The regional housing market is quite stable, but a harder than normal winter coupled with the traditionally slow Winter season resulted in pretty low transaction volume for the 1st quarter 2011. The entire region taken as a whole was down about 12% whilst Portland itself was off almost 25%. Thankfully however, prices continue to stabilize with the median price for a condo or home in Portland Maine for sale clocking in at 206K in the 1st quarter. Despite this slow 1st quarter.. most signs point to a very strong Spring season here in Maine.
Thanks for reading,
Green Tree Realty
The threat of a government shutdown has been avoided–for now. However, expect the budget and the challenge of debt reduction to stay in the headlines. We may have funding for the next few months, but expect deficit spending to cause the US to hit the debt ceiling of $14.294 trillion by mid-May. At that time we can expect more “sabre-rattling” by Congress. CNN/Money reports that the government will need to borrow more than $700 billion in the period from April 1 to September 30, which is the end of the fiscal year. Thus, we are adding about 10% to this debt each year. The House Budget Chairman Paul Ryan has introduced his own debt reduction plan. President Obama has outlined his. Many others will come from members of Congress. Again, there will be a lot of “sabre-rattling.” Action needed to raise the debt ceiling is mandatory but members of Congress will use this opportunity to protest and highlight their opposition to the growing debt.
Turning the emotions aside, there are some important facts to consider. First, in the past decade since 9-11 we have seen the largest growth in sovereign debt known to mankind. There are certainly many causal factors, but fighting two wars, suffering the “Great Recession” and lower tax receipts are all part of the equation. Second, something must be done with regard to deficit reduction in order for the economy to continue to grow. Consumers have tightened up and now government must do so as well. However, government must do so in a way that the recession does not return. That is called a “balancing act.” Finally, focusing upon only discretionary spending, which accounts for just over one-tenth of the budget, makes for big headlines but it will not eliminate the deficit. To eliminate the deficit, all spending must be on the table plus tax receipts. Which brings up another question. Do we need to completely eliminate the deficit? That is what part of the debate will be all about. One thing for sure, a stronger economy will produce more tax receipts and make the job easier. The largest contributor to the run-up of debt has been the loss of tax receipts due to the recession. Finally we ask the most important question. With another election around the corner, will the politicians keep their eye on the ball long enough to take meaningful action? It will be interesting to see if they just rattle sabres or use the sabres to do the work that was intended of them.
MARKET WRAP: Mortgage finished near unchanged levels but were able to pare losses after news that a new earthquake hit Japan, which drew money out of Stocks and into the Bond markets. The 4% coupon finished at 97.78 up 6bp. The only economic report today showed that Initial Jobless Claims fell 10,000 in the latest week but the news didn’t have much of an impact on trading. Stocks suffered moderate losses after the Japan news as the Dow lost 17.26 to 12,409.49, the S&P 500 lost 2.03 to 1,333.51 while the Nasdaq dropped 3.68 to 2,796.14. Oil settled at $110.30 up $1.47. There are no economic reports set for tomorrow.
For the past few years, homes have been the most affordable on record. Low rates and low prices make a wonderful combination. However, this wonder combination may soon be coming to an end. Why do we say this? For one, new home sales are the lowest they have been since the government started keeping records in 1963. While that sounds like bad news, the inventory of new homes for sale is not going up. This inventory is actually one-third of what it was just five years ago. This commentary just appeared in Fortune: “I’m a dirt-road economist who sees what’s happening on the ground, and in 35 years I’ve never seen a shortage of new construction like the one I’m seeing today,” declares Mike Castleman, CEO of Metrostudy. “The talking heads who are down on real estate will hate to hear this, but America needs to build a lot more houses.” Bottom line, we are not building fast enough to accommodate future demand. Even the ominous shadow inventory which has hung over the market is now shrinking. There were 2.0 million units in various stages of “pre-foreclosure” one year ago and 1.8 million units today, according to CoreLogic. This may not seem a huge drop, however, it is the first move downward in several years.
What makes us think that the demand will arise to continue to shrink the shadow inventory? The population of America is rising. We had shrinkage of household formulation during the recession and this masked the continuing rise in population. Tight credit conditions also turned many potential homeowners into renters, though many are renting houses. However, the news that the economy has now produced 400,000 jobs in the past two months is the continuance of a reversal of this trend. As America goes back to work, household formulation will rise again and there will be significant latent demand uncovered. We understand that two months of data does not guarantee the whole trend reverses itself. We lost about eight million jobs during the recession and the workforce grows by 150,000 monthly. So we have a long way to go, but the trend is moving in the right direction. The key is moving from a vicious to a virtuous cycle. More jobs create demand. Demand creates more jobs. And all this will help loosen credit conditions as a stronger economy will help convince banks to have faith in the average American again. You may be hearing the “bad news” regarding home prices right now–but this is a story that may be changing faster than many analysts have envisioned. Even the Federal Reserve Board is taking notice as a member stated this week that the Fed may be raising rates by the end of this year.