Pending home sales, or the number of people who have signed contracts to buy homes, increased during the month of March. Image from Wikimedia Commons.

Home sales and similar statistics regarding home sales have not been encouraging for months, but are showing signs of life. Pending home sales, or contracts to buy homes, were observed during the month of March, as spring is certainly the buying season. However, that still doesn’t mean that all is well yet.

Mortgage rates dip but more people sign the dotted line

The national average rate on mortgages took a slight dip recently despite it being the busiest time of the year for real estate, according to USA Today. Freddie Mac noted that average rates on a 30-year fixed mortgage dropped 0.2 percent over the previous week, and the 15-year fixed dropped 0.5 percent during the same period. Interest rates for 30-year fixed rate mortgages have steadily held under 5 percent for months and 15-year loans have similarly held at or around 4 percent. However, pending home sales, or contracts entered into for the purchase of a home, rose by 5.1 percent during the month of March. Analysts were expecting a rise closer to 1.5 percent, according to Bloomberg.

Wait to break out the champagne

Though there are signs of life and pending home sales did beat estimates, this does not mean that it is time to break out the bubbly and toast the end of recession. Pending home sales for March 2011 are 11.5 percent lower than for March 2010. Existing home sales also increased in March, according to CNN, increasing by 3.7 percent from the end of February. However, existing home sales for March 2011 are down 6.3 percent from March of 2010. Lawrence Yun, chief economist for the National Association of Realtors, credits the uptick as being “organic recovery,” or the market working on its own. That said, Yun expects the housing market to take until 2012 to return to pre-2008 conditions. The housing market still faces some challenges.

Job security and credit availability in the way

Part of the problem facing the real estate industry, tipped as being the single biggest factor holding back economic recovery, is both feelings of financial instability and tightening credit standards. High unemployment makes people feel less apt toward buying homes, but that is slowly starting to resolve. Credit standards are definitely tighter than in the past, though. Freddie Mac, according to the National Association of Realtors, noted that the average credit score needed to secure a mortgage had risen from 720 in 2007 to 760. The average credit score needed for a Veterans Administration or Federal Housing Administration loan rose in the same period from 630 to 700. Lawrence Yun has been quoted numerous times as saying that loosening up lending requirements would speed up sales dramatically.

Sources

USA Today

Bloomberg

CNN

National Association of Realtors

Investors are capitalizing on historically low home prices and interest rates while many Americans question the safety of home ownership. Image: Flickr/Georgivar CC-BY-SA

Existing home sales rose nearly 4 percent from January to February, according to the National Association of Realtors. Most of the home buying is being done by investors snapping up cheap houses in regions where high foreclosure rates are driving down home prices. First-time home buyers are staying away in what is being described as a cultural shift away from home ownership as the American dream.

Investors pad home sales stats

Investors throwing down cash on foreclosures and short sales drove up existing home sales last month to an annualized rate of 5.1 million. Foreclosures and short sales accounted for 40 percent of all purchases. Cash deals accounted for 35 percent of all sales, the highest percentage since the National Association of Realtors began tracking cash deals. The bulk of investor activity took place in markets hit hardest by foreclosures, including Phoenix, Las Vegas and Tampa. The 40 percent foreclosure sales figure could be higher; the Realtor group’s data tracks individual investors but not homes sold at auctions and bought by private equity firms. A tell-tale sign of investor activity is a 10 percent year-over-year rise in sales of homes less than $100,000. In the past year, sales of mid-priced homes fell more than 14 percent.

First time home buyers an endangered species

Sales among first time home buyers fell to 33 percent in March. According to the NAR, that figure would be about 40 percent in a healthy housing market. Although real estate is more affordable than it has been in a generation, a survey conducted by Fannie Mae found that at the end of last year, the number of people who said a home was a safe investment fell to 64 percent from 70 percent when the year began. The December figure was the lowest recorded by the survey, which began in 2003, when 83 percent of respondents believed in home ownership. But even during the housing crisis, owning a home was safer than most investments. During the peak of the housing crisis in 2008 the median home price in the U.S. dropped 15 percent compared with a dive in the Standard & Poor’s 500 Index of more than 38 percent. By the end of 2010, about 11 million homes in the U.S. were worth less than their mortgages, according to CoreLogic.

Re-thinking the American dream

A growing number of Americans are giving up on home buying, even though real estate is more affordable than it has been in 40 years, based on NAR data on home prices, mortgage rates and median U.S. income. The median U.S. home price plummeted 32 percent from its 2006 peak to a nine-year low in February 2011 — worse than the 27 percent decline recorded in the first five years of the Great Depression. Borrowing costs have also been historically low. According to Freddie Mac, the average rate for a 30-year fixed mortgage in 2010 was 4.69 percent, the lowest since 1972. According to the Census Department, the U.S. home ownership rate dropped to 66.5 percent in the fourth quarter, the lowest in more than a decade. In March, the percentage of Americans who plan to buy a home in the next six months fell by 23 percent.

Sources

Associated Press

Bloomberg

MSN Money

Plummeting home values are attracting cash buyers who outcompete mortgages with lower offers. Image: Flickr/Show Appeal Realty CC-BY-SA

The depressed housing market is attracting more people who buy homes with cash. In turn, home buyers who need a mortgage are finding it tough to compete with cash buyers. Yet mortgage buyers can match up better against cash by being better prepared when they make an offer.

Cold, hard cash is king

Deals made for cash comprised more than a third of home sales in February, an all-time high according to the National Association of Realtors. Cash buyers have become formidable opponents for many home buyers financing their deal with a mortgage loan. More home buyers are paying with cash because plummeting home values have made real estate a more attractive investment than the volatile stock market. People are also pulling their money out of the market and investing in rentals that net a greater long-term return than stocks.

In 2010, 59 percent of home buyers purchasing as an investment paid cash. Cash has an advantage over a mortgage because the seller knows a closing is unlikely to be derailed by contingencies. That convenience is often enough for the seller to accept a lower offer than one a financing buyer would make. Cash usually wins when the bank is the seller. Eager to get foreclosures off the books, banks will go with the safest option.

How to compete with cash

Foreclosures accounted for 25 percent of all home sales in 2010. Fannie Mae saw a 128 percent increase in short sales last year as well. But financing buyers have a more even chance over cash with sellers who have equity. Equity holders aren’t under pressure to take whatever they can get and will wait for the best offer. Financing buyers can also compete with cash by getting pre-approved for a mortgage. Being prepared with a high down payment also evens the odds. Listen to what the seller wants and be willing to do whatever it takes. Treat them with respect and have a detailed contract ready that makes the deal clear. When the time comes, act quickly. If none of these strategies work, financing buyers need not give up hope. Sometimes cash deals fall apart, too.

Cash deals versus mortgage financing

In addition to getting a better deal, paying cash to buy a home has several advantages. When mortgage rates are higher than available returns on other investments, the money saved on interest puts a buyer ahead of the game. Plus, with no leverage, if the value of the house falls, the buyer only loses what they put in. For a mortgage with 20 percent down, if the value goes down 10 percent, the home buyer loses 50 percent of the down payment.

But mortgages also have advantages over cash. Buying a home with cash leaves less liquidity for other investments. And leverage works both ways. If the value of the home goes up, the mortgage holder gains a higher percentage than the cash buyer. Plus, mortgage interest is tax deductible, which lowers the cost of the loan.

Sources

MarektWatch

WiseBread

Short Sale Daily News

Despite the downturn of the past few years, Americans still believe in housing as a great investment. Image from Wikimedia Commons.

A recent survey indicated that most Americans think real estate is a good investment. The value of the average house has dropped by nearly a third since the housing recession began in late 2007, and nearly a third of all homes are worth less than the amount that is owed on them. Housing prices will eventually begin to appreciate, but the process will take a while.

More than 80 percent of Americans have confidence in real estate

A recent survey revealed that despite the economic downturn, most Americans still have confidence in real estate as an investment. The Pew Research Center, according to Reuters, found that 81 percent of Americans felt real estate was still the best long term investment. More than 2,000 adults were surveyed by phone by the Social and Demographic Trends project, part of the Pew Research Center, and 37 percent “strongly agreed” that a house is the best long term investment, and 44 percent “somewhat agreed.” Most people believe that housing values will recovered within three years, but 23 percent said that they wouldn’t have bought their house if given the choice again.

April showers and May flowers

Realtors, according to MSNBC, are hoping that sales pick up during the spring and summer of 2011 and the current trend of slowing sales is reversed. Realtors and real estate industry analysts are concerned that the number of underwater homes and lower demand will keep home sales and home values down for some time. However, the National Association of Realtors is expecting an increase in home sales of 7.4 percent this year. One of the biggest complaints from the real estate industry has been that lenders are being too stingy, and standing in the way of the recovery that would benefit them by being too conservative with loan capital.

Downturn fuels skeptics

Skeptics and critics of the real estate industry have intensified their stance against home ownership, a cornerstone of the American Dream. An article on the USA Today website quoted Robert Shiller, co-founder of the real estate tracking Case-Shiller Index, as saying that people buy houses for security or lifestyle reasons. Another economist in the same piece found that a house only yields a 6 percent return on average. With depressed prices, along with agent fees and other closing costs, it may be far lower than that for many people.

Sources

Reuters

MSNBC

USA Today

Statistics of the national vacancy rate may cause people to think that ghost towns are popping up, but that is not the case. Photo Credit: Vivaverdi/Wikimedia Commons/CC-BY

It has been reported that the national rate of vacancy, or the number of houses sitting empty, has reached a 13 percent, but don’t panic. That figure does not mean it is time to begin constructing a bomb shelter and making hats from tinfoil. The housing market is depressed, but signs of life are still there.

Wealthy buying fewer homes in vacation hot spots

The media report a number of economic indicators, and statistics regarding real estate can cause a sense of doom on the horizon regarding the housing market. For instance, CNN recently published an article that said up to 13 percent of homes sit empty in America. That is a misleading statistic; CNN points out that many of the vacancies are in areas like Maine, Arizona and Florida — popular places for vacation homes. Furthermore, vacancies have gone up less than 1 percent, from 12.1 percent to 13 percent, in four years.

Pending sales increasing

Pending sales, homes that are being officially in the process of being sold, increased by 2.1 percent over February, according to Bloomberg. The dip in home sales over the past few months was attributed partially to frigid winter conditions, as no one wants to go house hunting in the middle of a blizzard. However, pending sales for February 2011 were also 8.2 percent lower than for February 2010, as the housing market is still sputtering. Lawrence Yun, chief economist for the National Realtors’ Assocition, anticipates existing home sales will pick up over the rest of 2011, according to Reuters, as older homes are selling at a faster pace than newly built homes. Newly built homes are usually more expensive than older homes.

Reality of realty

Most news about the housing market makes it seem as though a second crash is imminent, and it may be. The reality is that sales are slow, houses are not worth as much as they used to be, and banks may be less willing to lend. Prices are likely to stay low as long as fewer people are willing or able to buy houses, and lenders are skittish about lending in the current economic climate surrounding real estate. The good news is that anyone with the means to buy right now will get a great deal, and people who already own are likely to see the value of their property rise in the next few years.

Sources

CNN

Bloomberg

Reuters

Mortgage rates are rising, despite demand for and sales of houses still at rock bottom. Image from Wikimedia Commons.

Nationwide mortgage rates are creeping up despite dismal sales and demand. Interest rates on major mortgage products have been rising steadily for the past few months, though the rates are still near record lows. The real estate industry is still embroiled in a quagmire involving foreclosures, and demand is nearing an all time low.

Cheap housing cannot stimulate much demand

Even some of the cheapest real estate on record cannot seem to boost sales. Recent housing data revealed new home sales and existing home sales fell during February. Interest rates on mortgage rates are climbing since hitting near-record lows in the fall of 2010, according to USA Today. The nationwide average rate on 30-year, fixed-rate mortgages reached 4.81 percent on Thursday, March 24, an increase of 0.05 percent in a week. The average 15-year, fixed mortgage hit 4.04 percent. In November of 2010, the 30-year fixed was at 4.17 percent, and the 15-year fixed reached 3.97 percent, the lowest rates in decades.

Legal quagmire still ongoing concerning foreclosures

The legal dilemma regarding possibly fraudulent foreclosures initiated by rubber stamped paperwork, or “robo-signing,” is still far from a resolution. Major mortgage lenders practically handed out same day loans, rushing foreclosure paperwork without doing the due diligence. A major investigation was launched into the matter that involves all 50 state attorneys general and various federal agencies. Banks and mortgage lenders involved in the scandal are still struggling to secure a settlement with the states and the federal government, and some government agencies are looking to create their own settlement to bypass the process, according to Reuters.

Lousy outlook for real estate

Once the matter is settled, a flood of foreclosures will begin; thousands of pending foreclosures have been stalled because of the crisis. Evicting thousands of people will likely boost the payday loans industry as former homeowners scramble for cash to cover moving expenses. The foreclosure crisis is expected to cost the banking industry tens of billions, according to Fortune, regardless of any government settlements or fines. Anyone who can get access to the credit to purchase a home will benefit from doing so sooner rather than later. Demand and sales are very low, and fewer new homes are being built. The foreclosure mess has only made things worse, and the housing industry isn’t going to recover until prospective buyers are able to purchase homes again.

Sources

USA Today

Reuters

Fortune

The actual value of homeownership is being questioned by a growing number of skeptics. Image from Wikimedia Commons.

One of the longest standing hallmarks of the “American Dream” is becoming a homeowner. However, a growing number of skeptics are beginning to question whether it is actually a good idea for people to buy a home at all. There is some evidence that could support home-ownership skeptics’ argument.

Housing prices may not perform that well as investments

There are a number of experts within the finance industry that are coming to seriously question the long-held assertion that owning a home is a good investment, according to USA Today. In 2000, highly influential Yale economist Robert Shiller, for whom the Case-Shiller Index is named, released a book in which he looked at home values from 1890 and 1990. After adjusting for inflation, Shiller found that home values had barely moved at all in terms of real value. Former Federal Reserve economist Jack Francis found that stocks on the Standard & Poor’s index yielded an average return of 11 percent, but real estate yielded only 6 percent. Given the fluctuations in real estate values during the past several years, it would seem plausible that not as many people are realizing that much of a profit.

Prices and equity plunging

Overall home prices have been plunging since 2008, and the decline has not slowed drastically as yet. Home sales and home prices both declined in February 2011, according to Reuters. Existing home sales declined four percent during February 2011, and home prices declined 5.2 percent between February 2010 and February 2011. A more disturbing, but less prominently disclosed statistic in the press is the amount of equity the average homeowner holds. In the most recent “Flow of Funds Accounts of the United States” release by the Federal Reserve, the average household was estimated to hold 39.5 percent equity in the family home as of September 2010.

Old model breaking down

A home paying off as an investment depends on a lot of assumptions that cannot necessarily be taken for granted. If a person buys a home with a 15 or 30 year fixed rate mortgage and pays the mortgage off, the homeowner has property free of encumbrances that is not costly to live in and can be sold to raise a retirement nest egg. However, few families occupy the same home long enough to accomplish that task. Also, if a person sells a home for a greater price than it was purchased for, that profit may actually be nullified. Costs such as home repairs, property taxes, real estate agent fees and closing costs can add up to thousands of dollars, and very quickly. Furthermore, a home can be repossessed or foreclosed on by the mortgage loan lender if the home owner defaults on the mortgage. In comparison, stocks, bonds and mutual funds only have to be kept until they appreciate in value.

Sources

USA Today

Reuters

Federal Reserve on household holdings (PDF – Requires Adobe Reader)

Federal Reserve Flow of Funds Accounts report

Consumer lending, especially for housing, has been slow to recover from the recession. Image from Wikimedia Commons.

Consumer lending — loans lent to individuals — has been slow to recover from a two-year lull. Loans such as mortgages, auto loans, home equity lines of credit and personal loans aren’t impossible to get but are harder to get approved for. Banks are loathe to repeat mistakes that made them run for government cover.

Federal Reserve data indicates borrowing has slowed

Data compiled by the Federal Reserve indicates that debt levels from consumer loans have been falling since the summer of 2008, before the recessionary period began, according to Bloomberg. Total consumer debt, which includes most loans that lenders make to consumers such as personal loans, installment loans and auto loans, but excludes mortgages, stands at $2.4 trillion. That is 6.6 percent below July 2008, the peak period before the recession. Debt from housing loans has declined by more than $530 billion since 2008 with $10 trillion in housing debt still owed by homeowners in the United States. Fed Chairman Ben Bernanke was recently quoted as saying that conditions for credit markets were tight and that he didn’t expect a significant turnaround for some time in the housing market.

Housing market still lagging

The recession began in the housing market, and the return to healthy levels of activity in the housing market has been pursued for some time. Though improvements have been made, there have also been setbacks. From December 2010 to January 2011, home sales increased by a modest 2.7 percent, according to MSNBC, but the share of first time home buyers was only 29 percent of all purchases. Foreclosure properties made up 37 percent of the homes that were sold, and 32 percent of all purchases were made with cash. Given that a high number of foreclosure properties are being sold, a lot of purchases are being made with cash. The Case Shiller Index noted that high-end home sales are rising again, according to CNN, and there is every indication that this is a fantastic market for investors, not for prospective middle-income homeowners.

New models emerging

An increasing amount of regulations, such as the CARD Act and the proposed cap on interchange fees, makes it harder for large financial institutions to be able to turn the kind of profits they are used to. Some consumer credit may not be as easy to come by in coming years. For instance, since the CARD Act was enacted, free checking accounts have been disappearing from major banks, and JPMorgan Chase has been hinting at capping debit card purchases at $50 to $100 if the interchange fee cap is passed.

Sources

Bloomberg

MSNBC

CNN

Home sales have been increasing, but home values are declining. Image from Wikimedia Commons.

Nationwide home prices are declining, but home sales are beginning to rise. The past year has been volatile for real estate, but more people have been consulting with loan lenders to purchase a home. The low prices are thought to be the reason for the spike in purchases.

Wealthy and investors buying houses again

Figures for nationwide home sales from the National Association of Realtors indicate that an increasing number of people are purchasing homes, according to CNN. Home sales rose 2.7 percent over January 2011, to a seasonally adjusted rate of 5.36 million per year. The increase is also a 5.3 percent improvement over January 2010, marking the first time in seven months that home sales have been higher than figures from a year ago. However, the increase may be bolstered by people who don’t need to go to loan lenders to finance a home purchase. The number of cash purchases was 32 percent of all sales, up from 26 percent in January 2010. Sales to investors made up 23 percent of sales, which accounted for 17 percent of home sales in January 2010.

Foreclosures may have made up difference

The increased number of cash and investor purchases likely is due to deep discounts available on foreclosed properties. Distressed properties, according to Bloomberg, accounted for 37 percent of January 2011 home sales. More homes are available at rock bottom prices, and many a loan company is anxious to get a home off its balance sheet. There aren’t many people who have enough instant cash to pay for a home out of pocket, even one sold at half its value. The median home price has declined 3 percent since January 2010, to $158,800.

Home prices dropping

Many major metropolitan areas are still experiencing declining home values, according to USA Today. The Standard & Poor’s Case Shiller Index recorded drops in all but one of the 20 major cities it tracks. Only Washington D.C. did not see home prices decline. Areas with inflated real estate values such as Arizona, California and Florida have experienced the worst in decline, but southern states like Mississippi and Alabama are also experiencing price declines. The rise in sales may signal reversing demand, and many economists believe 2011 will be a year of dramatic recovery.

Sources

CNN

Bloomberg

USA Today

It's a buyer's market, but home sales continue to suffer as potential home buyers wait for prices to bottom out. Image: CC TheTruthAbout/Flickr

The housing market has been suffering as home sales and home values continue to slide. People aren’t buying houses, but perhaps they would if they could. A recent poll shows that most Americans believe now is a good time to buy a home.

Believing in a buyer’s market

A lagging housing market has been a drag on economic recovery, but a recent Gallup poll found that when it comes to home buying, 67 percent of Americans believe that now is a good time. Even though that is a majority of poll respondents, it isn’t exactly good news. The poll, taken earlier this month, involved a random sample of 1,018 adults. A Gallup poll a year ago found that 72 percent of respondents believed in a buyer’s market, up from 71 percent in 2009. The percentage of optimistic potential home buyers has dropped to 67 percent as home values keep declining. Potential home buyers are waiting for home prices to bottom out.

The great decline in home prices

The drop in U.S. home prices began in 2007, has persisted and will continue in 2011. RealtyTrac, a housing market research firm, reported a record number of foreclosures in 2010. Most of these homes haven’t yet been marketed. When they do, inventory of homes for sale will rise. A report from Standard & Poor’s said the average price of homes in the U.S. could fall by another 7 percent to 10 percent this year. Twenty-seven percent of respondents to the Gallup poll believe home prices in their neighborhoods will continue to plummet. Even more, 42 percent, are worried that their own homes will continue to lose value. Surprisingly, 21 percent expect home values to increase in their community.

Housing market outlook

To resuscitate the housing market, the government pulled out all the stops last year. The new home buyer tax credit gave $8,000 for each mortgage. The Federal Reserve bought more than $1 trillion in mortgage securities and has kept mortgage rates artificially low. But with unemployment still high, most American’s believe the recession hasn’t really ended. Fed chairman Ben Bernanke said last week that it could take at least three more years for employment to recover to pre-recession levels. But interest rates are so low, getting a loan to buy a house now is one of the best long-term investments available. Most American’s seem to believe that, but acting on it has yet to happen.

Sources

MarketWatch

24/7 Wall St.

Seeking Alpha

The real estate market hasn't completely burned to the ground. It's showing some signs of life. Image from Wikimedia Commons.

There doesn’t seem to be a lot of good news when it comes to real estate in the U.S. However, there is a scant glimmer of hope amid the doom and gloom. It turns out that U.S. home prices have been rising, if only slightly, for the last few consecutive months. The Case Shiller Price Index has been showing slight upward trending of home prices, and a gain was recorded across 20 cities for homes sold between May and June 2010. Some good news is appreciated, as real estate is one of the most depressed markets in the U.S. currently.

Slight gain in home prices

Standard & Poor’s Case Shiller price index, which tracks real estate activity in 20 cities, has showed a gain in home prices in the second quarter of 2010. According to the New York Times, the second quarter posted a 4.4 percent gain in home prices. The first quarter of this fiscal year saw a fall in home prices of 2.8 percent. Also, home prices for second quarter of 2010 are 3.6 percent higher than for second quarter of 2009. For July, home prices rose 1 percent over June.

There is a catch

Along with the rise in home prices, sales are trending downward. The homebuyer tax credit helped to spur home sales, but once the credit expired sales began to drop off. It’s likely that home prices will fall again. Economist Karl Case (for whom the index is named) said that while some of the data was positive, a stabilization of financial markets had not occurred yet, according to Bloomberg. Case thinks it will be another year or so before a more stable market emerges, and begins to grow again.

At least it was good news

The bottom line is that the homebuyer tax credit gave a temporary, which is to say artificial, boost to home sales, and also home prices. A truer state of the market can’t really emerge until governmental encumbrance has been removed. However, on the plus side, things are better than they were a year ago.

Sources

New York Times

Bloomberg

Existing home sales rose sharply in March. Image from Wikimedia Commons.

Since the Great Recession had origins in real estate (at least partially), existing home sales have been of great interest. The existing home sales rose by 6.8 percent in March.  It’s believed the first time homebuyer tax credit had a hand in the spike.  Because so many people had been hard up to get the financing, and others went running for mortgage loan modification, any modest gains in real estate are welcome signs of relief.

Existing home sales reflect inventory

Existing home sales are defined as sales of single family homes that are not new construction — any single family residence not brand spanking new, in other words. The National Association of Realtors recently released its monthly report concerning existing home sales, and things are starting to look up.  More homes are available, which means lower prices.  Not that you’ll ever be able to buy a home for a couple of payday loans worth, but the sun is shining, and people are making hay, so to speak.

Inventory is up as well

According to CNN, home inventories rose by 1.5 percent, with an inventory of 3.58 million homes available.  The median home price rose 0.4 percent to $170,000.  The supply of homes (how long it would take to sell inventory at current pace) dropped from an 8.5 month supply in February, to an 8 month supply for March. Single family home sales rose 7.3 percent, to a rate (homes sold per year) of 4.68 million, up from 4.36 million in February.  According to the NAR report, 44 percent of sales were to first time homebuyers, up from 42 percent in February.

Why the sudden boom?

Late winter home sales are often affected by late winter storms, and January and February had some doozies.  Also, the first time homebuyer credit is believed to have affected sales.  An $8,000 credit off the tax bill may have encouraged some homebuyers who were on the fence.  NAR Chief Economist Lawrence Yun said the tax credit “has been a resounding success.”

Distressed homes or foreclosures

Foreclosed or distressed homes accounted for 35 percent of total sales.  Lower prices make them more attractive to first time buyers with hesitancy over the market.  Regarding foreclosures, Yun said, “In fact, foreclosures are selling quickly, especially in the lower price range that are attractive to first time homebuyers.”

So is the housing recession over?

The way markets work is that conditions constantly cause adjustments – supply and demand, Econ 101 kind of stuff.  However, depressed market conditions are guaranteed to eventually reverse – as demand lowers, supply increases, and prices lower. Lower prices mean people who want to buy will because they’re getting their desired commodity for a discount. Eventually, supply decreases and demand, and thus price rise again. The market is recovering naturally, as it always was going to.

Americans are still keeping a tight hold on their cash.

Warren Buffet seems to believe that, despite what other experts are saying, consumers won’t find debt relief any time in the near future.

“Everything I see about the economy is that we have had no bounce,” says Buffet. “There were a lot of excesses to be wrung out and that process is still underway and it looks to me that it will be underway for quite a while. In the annual report I said that that economy would be in shambles this year and probably well beyond, and I think that is true.”

Buffet claims the biggest contributor to the lagging economy will be unemployment. Buffet believes that this unemployment spike will continue to “depress consumer demand for everything from energy to cars and homes.” Unfortunately, much of the economy’s turnaround is dependent on consumers getting back into spending. The signs are showing that this is unlikely to happen.

The economic turnaround

Ben Bernanke, chairman of the Federal Reserve, has cited nascent signs of economic recovery abounding throughout the market. He has been a strong proponent of consumer anticipation of better times on the horizon. However, Buffet’s argument is based on some telling facts about the market. The decline in home building dashed many hopes that the economy and credit industry turned around enough to once again push people to start buying big ticket items.

Buffet claims that debt relief for the masses is a long way off because of the seemingly unstoppable unemployment rate. “It looks like we’re going to need more medicine, not less,” he stated recently, implying that the country will need a second stimulus if it is ever to recover.

Cautions for the future

Despite some changes and government intercession, Buffet claims that more is needed. He also believes that the stimulus and programs the government has already introduced will impact the economy in adverse ways. “We have done things that raise the probability of high rates of inflation at some point,” he added. He stated that some of the government’s movements have been necessary, but could push the value of cash to record lows.

People’s futures

So people are left to wait it out and see what results the stimulus really will bring. Many people have seen the fall of large corporations and bankruptcy filings by huge companies. They take this as signs that they must continue to be cautious about their own finances and make due, rather than go out and start buying again. However, everyone agrees that consumer buying is key to true economic resurgence. Without some confidence in the market, however, that buying seems to be an impossibility. Consumers are opting to do without rather than stretch their budgets in an unknown economy.

Despite Buffet’s words

Despite what Warren Buffet is professing to the public, people are going to have to make their own judgments on what their future holds. They will have to be vigilant with their finances to find debt relief and still be able to save for retirement, college and emergencies. In the end, only time will tell how well the economy will bounce back and what state it will be in once it does.

Production is on the rise

If you need easy loans just to make it from paycheck to paycheck, and even then you could still use some extra cash, take heart. Recently there have been hopeful signs that the current recession is coming to an end.

At the end of July, the government reported that the real gross domestic product (GDP) fell at an annual rate of only 1% in the second quarter. Manufacturing activity rose to its highest level in the last year. Car sales jumped 15% and manufacturers are ramping up production. Based on the data now available for July, experts are predicting that the GDP will increase by as much as 3% in the second quarter.

Home sales are on the rise

Another encouraging trend is that existing home sales are on the rise. Between April and May, the S&P/Case-Shiller 20-city index of house prices fell just 0.2%, the smallest decline in the past two years. Stabilizing house prices are expected to reduce mortgage-loan defaults, shore up bank balance-sheets and improve the flow of credit.

Oddly, unemployment is also on the rise

Employment, however, is the single most important economic benchmark, and the outlook on that front remains grim. Unemployment rates are still on the rise, which is surprising given that economists generally predict that an increase in the GDP will be accompanied by a decrease in the unemployment rate.

The accuracy of this rule of economics, called Okun’s law, has been disputed, however; and according to Michael Feroli, an economist at JPMorgan Chase, Okun’s law would have predicted a national unemployment rate of only 8.6% during the second quarter of this year, whereas the actual rate averaged 9.3%.

Many factors influence the rising unemployment rate

Several factors may be at work in the discrepancy between the improving GDP and the worsening unemployment rate. Last week, the government revised earlier data to show that the GDP has declined a cumulative 3.7% (rather than 2.5%) since the end of 2007, tying with 1957-58 as the deepest recession since the Great Depression.

Also, expanded unemployment-insurance benefits are encouraging some workers to keep looking for jobs rather than drop out of the workforce altogether, which according to the government, could add as much as a half percentage point to the unemployment rate. Similarly, dissipation of wealth is driving people to look for employment rather than retire or stay at home with the children.

Another factor may be that employers have been quick to slash payrolls. Businesses are budgeting more conservatively because of the credit crunch, and many are pessimistic about an eventual economic recovery.

Whatever the explanation, productivity is rising and so is unemployment. According to a recent article in The Economist, Robert Hall of Stanford University, head of the academic committee that identifies and assigns time frames to recessions, says Okun devised his law in an era when productivity usually fell during recessions: “When productivity rises, the law fails.” Okun’s law, he says, is “obsolete.”

The rise in production may be a false reading

Employers are not likely to do much hiring until it seems reasonably certain that the new growth in production will continue. And some economists are doubtful that what we are seeing is real growth. These experts attribute the recent increase in production to the replenishment of inventory after an extended period of filling new orders from existing inventory in idle factories. They point out that inventory replenishment gives production a temporary boost without a corresponding increase in consumer demand.

The federal cash-for-clunkers program may also have given production an artificial boost. Recent car sales have been strong, in large part because of the program, which offers subsidies of as much as $4,500 to people trading in older, higher-emissions vehicles for newer, more fuel-efficient cars. But the $1 billion set aside for the program, which was supposed to run for several months, was depleted within the first week. The House of Representatives has now voted to spend an additional $2 billion and the Senate is expected to do likewise. But cars bought now will mean fewer cars bought later.

Numbers have a way of changing

And one more qualification: Government figures are notoriously subject to revision. Even the Great Depression is getting worse. According to the latest revisions, the GDP fell 26.7% (rather than 26.6%) between 1929 and 1933. In another 50 or 60 years, or as soon as next week – who can say? — today’s fresh new growth in production may never have happened.