News for Investors

Home prices up, but…

The Standard & Poor's/Case-Shiller home-price index shows prices increased in June from May in 19 of the 20 cities tracked. A separate figure shows prices rose 3.6% in the April-June quarter from the previous quarter. Those numbers aren't adjusted for seasonal factors. Over the past 12 months, home prices have declined in all 20 cities after adjusting for seasonal factors.

Chicago, Minneapolis Washington and Boston posted the biggest monthly increases. Metro areas hit hardest by the housing crisis, including Las Vegas and Phoenix, reported small seasonal increases.

Despite the uptick, the numbers contain "really no hope of any kind of surge," David Blitzer, S&P Index Chairman David Blitzer said. "None of the fundamentals look that good," he said.

"People still have difficulty getting mortgage loans, they still have difficulty in refinancing. The banks got a lot tougher and haven't gotten any easier no matter how you measure." Blitzer said the housing market is taking on a more regional perspective, with the Sun Belt continuing to languish and other areas of the country stabilizing. "You have to look much more into details," he said. "You'll some good times here and there but it's a thin river of hope overall."

Fed for more "easing?"

According to Chicago Fed President Charles Evans, the Federal Reserve may get even more aggressive in its easing policies than it has been so far unless the economy shows significant improvement. In his view, QE needs to stay in place until unemployment plunges to 7% or if inflation gets past 3%. Core inflation, which strips out food and transportation, is about 1.8%, though the number is 3.6% including the more volatile measures. "Strong accommodation needs to be in place for a substantial period of time," he said. "If we could sort of make everybody understand that this is going to be in place for a longer period of time, we could knock out some of that restraint that comes about when people talk about premature tightening."

Since the financial crisis hit in 2008, the Fed has expanded its balance sheet past the $2.5 trillion mark and kept its funds rate near zero in an effort to stimulate the economy. It has not worked - the housing market is worse than Great Depression levels, recent manufacturing readings have been around contraction levels and weekly jobless claims have stayed above 400,000.

NAR - pending sales slip

The Pending Home Sales Index (PHSI), a forward-looking indicator based on contract signings, slipped 1.3% to 89.7 in July from

90.9 in June but is 14.4% above the 78.4 index in July 2010. The data reflects contracts but not closings. The PHSI in the Northeast declined 2.0% to 67.5 in July but is 9.7% above July 2010. In the Midwest the index slipped 0.8% to 79.1 in July but is 18.8% above a year ago. Pending home sales in the South fell 4.8% to an index of 94.4 but are 9.5% higher than July 2010. In the West the index rose 3.6% to 110.8 in July and is 20.6% above a year ago. Lawrence Yun, NAR chief economist, said sales activity is underperforming. He followed that observation with his typical hopefulness: “The market can easily move into a healthy expansion if mortgage underwriting standards return to normalcy. [But we] also need to be mindful that not all sales contracts are leading to closed existing-home sales. Other market frictions need to be addressed, such as assuring that proper comparables are used in appraisal valuations, and streamlining the short sales process.”

Irene hits sales

Hurricane Irene hit the US East Coast at the most inopportune time for many businesses, keeping millions of shoppers away from stores and auto dealerships during what should have been a busy weekend. As much as a fifth of US auto sales are often generated in states affected by Irene, said Paul Taylor, chief economist with the National Automotive Dealers Association. And in those states, August sales will likely be down about 10%. A bigger problem related to Irene may hurt September sales as well, Taylor said. "The real issue is going to be flooding," he said.

The average forecast of 44 economists surveyed by Reuters was

12.1 million vehicles were sold on an annualized basis, up from

11.5 million a year ago, but off slightly from 12.2 million in July. Honda appears to be struggling the most. and expect Honda's sales for August to drop at least 22% to 25% from last August, and for Toyota's sales to fall at least 11% to 14%.

Retailers that sell back-to-school items likely felt Irene's pinch as the storm essentially shut down malls on a weekend when parents normally shop for clothes and notebooks, not bottled water and flashlights. "This is a major weekend of sales that were planned, but that won't happen, in one of the most densely populated regions," said Joel Bines, a managing director of consulting firm AlixPartners. The damage could take 1%age point off August same-store sales, said Bines, adding that leftover merchandise will likely be discounted, damaging gross margins. A large portion of back-to-school sales, retailers' second-most important season after the winter holidays, could be lost for good, especially if it takes time for the transportation infrastructure to get back in place. "There are millions of dollars in economic activity and productivity that were lost and simply will not and can not be recouped," said weather tracking firm Planalytics.

Olick - a curious letter

"A borrower in Michigan recently received a letter from his mortgage servicer, CitiMortgage. It offers to discuss foreclosure alternatives, including potential eligibility for the government's mortgage bailout program. It is clear, succinct, and gives several phone numbers and contact information. The letter includes the borrower's name, address, and mortgage loan number. It seems quite reasonable...except that the borrower tells me he isn't and hasn't been late on any payments. 'I called them and they stated they sent this letter out to all mortgage clients,' the borrower tells me in an email.

'I am one of these clients and have had no issues with my mortgage, and they get my direct payment on time every month.'

He says that when he called Citi, the operator said it was a, 'blanket letter and basically junk mail.' I called Citi to verify the letter, which arrived in an envelope with a Citi logo.

Obviously lenders/servicers have been sending letters to troubled borrowers, offering assistance to avoid foreclosure, but a blanket letter to all borrowers seems a bit much. There have also been a lot of scammers using fake bank logos. A Citi spokesman says, 'I don't believe it went out to all customers.

We are not getting reports from our call centers that they are getting any significant number of calls on this. It is likely a coding error that affected some accounts.' If the letter had gone out to all Citi customers, most of those customers would have called in, fearing there was a mistake and that their properties were being foreclosed improperly. That didn't happen, so perhaps this one borrower did just get it in error. What's so interesting/telling, though, is that the operator at Citi who answered the borrower's call referred to the letter as 'junk mail,' as if it makes sense that a mortgage servicer would send out a blanket foreclosure help letter to every one of its customers. Perception versus reality, I suppose."

See you at the top!

Chris McLaughlin


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From Chris McLaughlin

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