Thursday, February 15, 2007

The Federal Reserve Report on the economy and housing

Pessimism from housing sector economists was loud enough to convince Federal Reserve Chairman Ben Bernanke that inflation might be temporarily under control, thanks largely to the fumbling national housing market. Mired in fear, rising gas prices, and fluctuating higher mortgage interest rates, housing is predicted to turnaround in sales and prices later than sooner.
Testifying before the Senate Banking, Housing, and Urban Affairs Committee, Bernanke said that the Fed.is holding overnight interest rates steady at 5.25 percent but is closely watching inflation, which is a "predominant policy concern." The Fed forecasts that inflation will ease over the next couple of years, and that 2007 will see a rise of 2.0 to 2.25 percent in inflation, based on core consumer consumption, and about 1.75 to 2.0 percent in 2008, which is in Bernanke's stated "comfort zone."

Risks to inflation include an improving jobs market, but Bernanke was quick to note that higher wages doesn't automatically result in higher inflation if productivity is also higher. He says the job market should remain healthy with rising incomes and unemployment hovering at about 4.75 percent to 5.0 percent, slightly higher than 2006. Gross domestic product should grow 2.5 percent to 3.0 percent in 2007, with growth in the 2.75 percent to 3 percent in 2008.
But a worsening housing market could hurt overall economic growth, and in that case, the Fed would consider lowering overnight rates to banks. "Even if housing demand falls o further, weakness in residential investment is likely to continue to weigh on economic growth over the next few quarters," said Bernanke.

This statement is solidly in line with dour forecasts from housing economists. "We're going to see a much bigger drop in investor demand this year," says David Berson, chief economist for Fannie Mae. "but by the second half of the year, the market will stabilize, if investors can pull out quickly."

Berson told CBS Marketwatch that he "expects the home-price index as calculated by the Office of Federal Housing Enterprise Oversight to show it's first year-over-year decline in home values since such data was first collected back in 1975. Unlike the National Association of Realtors or National Association of Home Builders (NAHB) price data, the OFHEO measures the prices of the same homes over time. The NAHB admits that there's still a huge overhang in inventory that has been wreaking havoc with builders' bottom lines as they apply incentives to entice homebuyers in a fear-corroded market. Housing starts won't rebound until 2008 and prices will rise an anemic 1.3 percent according to NAHB forecasts. This could set the stage for home sales to weaken further, as builders continue incentives and as existing home sellers lower prices to compete.

Tuesday, February 13, 2007

Job growth in region

The housing market may be experiencing a short-term correction but here is another reason for its continued long-term growth…… Jobs.

Inland California experienced a 46 percent growth in jobs between 1990 and 2005 while job growth along the coast only increased 9.6 percent. According to a report released by the California Budget Project, job growth in Interior California grew 1. 1 million and generated 54 percent of the state’s new job growth. Placer and El Dorado County have been two of the hottest inland counties for job growth. Placer jobs have increase by 127 percent while jobs in El Dorado County increase 71 percent.

Nevada County jobs have increased 43 percent since 1990 to 30,000 workers. Amador County has 12,110 employed for a 48 percent increase, El Dorado County has 51,500 workers, Placer, 138,000, Sacramento, 600,000, Sutter 22,600, Yolo 96,000 and Yuba 17,100.

The capital region gained 18,000 new jobs during 2006 and the unemployment rate continues to be less than the state’s average.

Sunday, February 11, 2007

Good news for new home sales

Why is it that when the builders have a poor sales month or quarter we read about it on page one of the local newspaper and it leads on the evening news. “New home sales drop to record low.” Then, sales pick up and the good news gets buried on the back page?

In case you missed the article on page D2 in the Sac Bee, January new home sales climbed to their highest monthly total since June of 2005. This according to the North State Building Industry Association that keeps track of such information in 186 new home communities in our region.

The 702 January sales was a big increase from the 486 new home sales in January of 2005 and the 379 reported in December. Fourth quarter 2006 sales were up 55 percent from the same quarter of 2005 according to the Gregory Group
Based on the new sales information the association is predicting a gradual recover in regional housing.

Nearly 40 percent of all new home sales occurred in Placer County. The largest percentage of sales, (60%) were homes priced between $400,000 and $600,000 but one-third were priced under $400,000.