Potential home buyers came out of the woodwork in October, signing contracts to buy existing homes at a higher-than expected pace.
Pending home sales jumped 10.4 percent compared to September, according to the National Association of Realtors, with the biggest gains in the Midwest, up 24 percent.
The Northeast also saw sizeable gains, as did the South. Only out West did buyers stay on the sidelines, with pending home sales there basically flat month to month.
“Home sales have been plodding along at a sub-par level while interest rates are hovering at record lows, and there is a pent-up demand from buyers who normally would have entered the market in recent years," said Realtor chief economist Lawrence Yun. "We hope this is indicates more buyers are taking advantage of the excellent affordability conditions.”
But even the Realtors caution that not all contracts turn into actual closed home sales. In fact, 18 percent of Realtors reported at least one cancelled contract in September, which is a huge jump from the normal level of between 4 and 6 percent.
Cancellations are running high for several reasons. First and foremost is credit. Many potential buyers are either not qualifying for a loan or not getting the interest rate they need; another reason is short sales, which are making up a growing percentage of distressed sales. This is when the bank allows the borrower to sell for less than the value of the mortgage. Short sales are a long and difficult process, requiring bank approval, and many potential buyers drop out in frustration.
Consumer confidence is not helping matters either. As the crisis in world financial markets sends the U.S. stock market on a roller coaster ride, many buyers get cold feet.
They also see continued home price declines, as seen in Tuesday's report from S&P/Case Shiller. That, Realtors say, can easily scuttle a deal.
On the near term, it's a positive development that pending contacts are up as we head into a seasonally slow period. Demand for housing has been and still is a key issue for real estate. The question is, will it be sustainable?
If the stock markets rise going into year end, which may be evident by the surge the past few days, then maybe consumer confidence can improve and support some demand short term and soak up some of the pent up demand.
That being said, the longer term outlook for demand is still a major issue. The simple math dictates demand will be an on going problem for a number of years.
First, we have roughly 25% of current home owners who are upside down. And, that only factors the debt against the home value. Add to debt the expenses to sell a home, such as; commissions, taxes, and minor improvements, and the number of people in theory that are upside down is probably 35 to 45%. None of those people are going to be moving and buying anytime soon.
Secondly, Baby Boomer demographics will continue to grow, and the stay where we are or move down mentality will grow as more Boomers enter retirement age. Those demographics at best only support regionally cheap real estate markets.
Lastly, new college grads can't find work, and even if they do it will probably be for less pay while they carry massive student debt.
All three of the above impair a large part of this country from being an active real estate buyer, and why I feel demand will be an on going issue for years.
Central Banks to the Rescue? What Today's Action Means
The attempt by major central banks to ease strains on Europe's credit markets certainly cheered financial markets on Wednesday, but what does the coordinated action actually do?
In essence, the US central bank, or Federal Reserve, agreed to provide cheaper dollar funding to the European Central Bank—which can then provide cheaper dollar loans to cash-strapped European banks. (For a fuller explanation of how the ECB borrows from the Fed, click here.)
The participation of the central banks of Canada, England, Japan and Switzerland is more of an effort to show that all the central bankers are working together than any expectation that there will be lots of dollar borrowings under their facility.
The goal is to ease the credit crunch in Europe. Lots of European banks make dollar denominated loans, in part because US interest rates are so low. The banks do not usually finance these loans in the way you might think—by lending out the deposits of their retail customers. Instead, the loans are financed by short-term borrowings from other financial institutions.
The good news is that global easing will support asset bubbles and re-inflating stock markets. In this case, the moves should support gold and stocks...........................for a while! But what has it done if anything for the Main Street economy?
Once again, Ben Bernanke is doing the only thing he knows, which is more QE. Now he's clearly on a global form of QE. Are we not just kicking the can again? Why should the Federal Reserve or the US be involved in such transaction? Is that part of their price stability mandate? Are the players trying to prop markets up prior to election time?
The answer is quite obvious, it's to support the near term outlook which benefits the current financial and political elite once again.
Service Sector Leads Boost in Job Creation; Layoffs Fall
The private sector created 206,000 jobs in November, far more than expected and the most in nearly a year, as service sector positions exploded and manufacturing and construction posted modest gains.
ADP and Macroeconomic Advisors reported that service providers added 178,000 positions. The goods-producing sector saw a 28,000-job rise, while manufacturing employment increased by 7,000 and construction added 16,000.
"This month's jobs figures show positive growth in all major sectors of the economy and are in line with the recent drop in the national unemployment rate and weekly jobless claims," Carlos Rodriguez, President and CEO of ADP, said in a statement. " Despite fiscal uncertainties here and abroad, owners of small- and medium-sized businesses found ways to grow and hire in November. As in previous months, service providers led the way in job creation."
The report also said the estimated gain in employment from September to October was revised up to 130,000 from the initially reported 110,000.
ADP Chairman Joel Prakken said the reports is "normally would be associated with a decline in the unemployment rate," which currently stands at 9.0 percent. In a conference call with reporters, he said he expects Friday's nonfarm payroll report to come in above expectations of 122,000 new jobs created.
"I'm expecting a number that's well above consensus on Friday, (but) maybe not as strong as this number today because this number does not include the government sector and my sense is, particularly in state and local level governments, they're still shedding employees," Prakken said.
At the same time, the number of planned layoffs at U.S. firms edged down marginally in November, though job cuts for the year have surpassed 2010's total, a report on Wednesday showed.
Employers announced 42,474 planned job cuts this month, down 0.7 percent from 42,759 in October, according to the report from consultants Challenger, Gray & Christmas Inc.
November's job cuts were down 12.8 percent from the same time a year ago when 48,711 layoffs were announced. But with just one month left in the year, employers have announced 564,297 cuts for 2011, exceeding 2010's total of 529,973.
Cuts in the government sector accounted for 44 percent of November's layoffs, the eighth time this year the sector has led all others in monthly job cuts.
Of the 18,508 government job cuts announced this month, 13,500 were the result of civilian workforce cuts made by the United States Air Force.
"Over the past six months, we definitely have seen a shift away from the heavy government job cuts at the state and local level toward increased job cuts at the federal level," John Challenger, chief executive officer of Challenger, Gray & Christmas, said in a statement.
"The worst may be yet to come, as cutbacks spread from the military to every other agency in Washington."
Hiring plans fell sharply to 63,527 from 159,177 the month before. Most of November's gains were from seasonal workers being hired by UPS [UPS 71.42 3.01 (+4.4%) ].
The report comes two days ahead of the key U.S. jobs report, which is forecast to show the economy added 122,000 in November.
You have to read that entire article to get right to the important part of this good news....................It's mostly seasonal workers in service!!!
What happens when we get past the holiday season? What happens when cash strapped municipalities have to deal with this years deficit and worry about the following year's deficit?
Just like the good real estate data out today, will it be a blip or short lived?
I guess the title to this blog is mostly sarcastic!
Hope all is well.
J.D. Rosendahl, Rosey