Burbank Real Estate Blog

 

Economic Recap:

 

• Pending home sales for September dropped 4.6%, worse than expected.
• Showing extremely weak numbers, total domestic light vehicle sales came in at 7.7 million annual unit sales. This the lowest since the recessionary times in the early 80s. The car rate of 3.9 million is the lowest yet in data going back to 1967.
• The October jobs report fell for a tenth-straight month, showing larger-than-expected job losses and the highest unemployment rate since 1994. Nonfarm payroll employment in October plummeted another 240,000, following a revised drop of 284,000 in September and a revised decrease of 127,000 in August. The For the year-to-date, the economy has lost 1.2 million jobs net.

• Federal Reserve lowered interest rates this week by ½% to 1% for the federal funds rate and 1.25% for the discount rate.
• Consumer Confidence is at it’s lowest level, ever! Or at least since they began tracking this number 40 years ago.
• So far this year we have had 17 bank failures.
• Chicago Purchasing Manager’s Index came in with a steep drop, from 56.7 in September to 37.8 in October. Readings below 50 point to slowing output, reduced orders, which point to reduced consumer spending and demand.
• Both the 3 month and overnight LIBOR rates have dropped. There is a great article….Uncovering the mysteries of the LIBOR, for those interested in further reading.

 

 Be on the look out for the advance retail sales report due out end of next week. 

As I’ve said before, I think many things need to happen for both the economy and the real estate market to turn around, but key elements include shoring up the unemployment situation as well as our credit markets. How quickly this will happen as well as cleaning up our mortgage situation will determine how fast we come out of the current quagmire.

 As far as the Burbank and San Fernando Valley real estate market, we'll have to see how the local economy fares. We’re still not out of the woods with respect to unemployment and the recessionary back drop. How bank lending reacts to the current financial upheaval will prove to be a pivotal factor in our recovery as well as foreclosure bailout proposals being discussed by congressional leaders.

 

Burbank Real Estate Monthly Activity Report: 10-2008

Property Type: Residential

 

	New	Avg LP	Under Contract	Avg LP	Sold	Avg SP	%SP/LP	%SP/OLP	Avg DOM
	93	$558,531	39	$535,440	59	$555,834	97.80%	93.40%	54

The columns for New, Under Contract, and Sold represent the number of listings that went into those statuses during the month. These are updated on the 1st and 15th of each month for the preceding month.

Information is Believed To Be Accurate But Not Guaranteed

Southern California Multiple Listing Service

 

Month to month average sale price from September to October 2008 is up $, year over year, average sale prices are down by $ or %.

Average days on market, year over year are days.

Average square footage is % year over year.

Most notably number of sold properties is down 34% from September 2008 and down 22% from October 2007.

 

 

• According to the San Fernando Valley Economic Research Center, foreclosures soared 203 percent from July through September compared to a year earlier. 2,589 local families lost their homes in the market collapse.

• There were 854 foreclosures in the comparable period in 2007.

• The glut of homes on the market pushed down the median price, to $400,000 in September from $620,000 a year ago, down 35.5%. The price fell $21,000 from August levels.

• The median price of an existing, single-family detached home in California during September 2008 was $316,480, a 40.9 percent decrease from the revised $535,760 median for September 2007.

• Statewide, days on market and inventory on hand is down. We are currently at a 6.5 month inventory for California.

• The new home sales report for September points to the possibility that the sector has bottomed. New home sales came in at a better-than-expected annual rate of 464,000, up 2.7 percent on the month. The 464,000 rate is the first back-to-back below 500 rate since the '91 recession. Supplies are coming down and are at 10.4 months, down from 11.4 months in August. The median price, of $218,400, is the lowest in four years.

• Impressive reductions this last month in the foreclosure arena! For the San Fernando Valley, in the $200k-$400k segment (yes, there is plenty of housing out there in the neighborhood of $200k), I saw reductions ranging from several thousand to one hundred thousand dollars! This points to the fact that the banks are wanting to clear out some inventory, maybe some year end house cleaning? At any rate many homes have gone into multiple offer situations as buyers are out in full force.

 

• A couple of things are clear, many people have lost confidence in the financial system and this is not just a U.S. problem as the aftermath of this financial crisis is being felt around the world.

• Federal Reserve Chairman Ben Bernanke brokered the broadest coordinated interest rate cut in history, among all of the central banks. Yesterday, the Fed, the European Central Bank, the Bank of England, Bank of Canada and Sweden's Riksbank reduced their benchmark rates by half a percentage point. The Bank of Japan and Switzerland also supported the action and China's central bank cut it's key rate by .27 percentage point.

• The stock market has reacted sharply to economic and credit data this week and ended today at 8579, down 679 points on the day. We have not seen these levels since 2003.

• The giant safety net that the Fed and Treasury have initiated has helped to keep the financial system afloat, but it has not restored confidence nor has it enabled US banks to start lending to each other again. Banks in Europe, as evidenced by the extremely high Libor rate, remain on the defensive and continue to hold on to cash. The Libor rate is at it's highest level this year.

Why should you care about the Libor rate?

Some business loans and many adjustable rate mortgages in the US are tied to the Libor rate, the rise will probably put added stresses on consumers and could offset some of the easing by the Fed over the past year if the rate stays high. Questions to ponder:

• Currently the nominal value of all delinquent US mortgages, as of the 2nd quarter, was put at $680 billion by High Frequency Economics. If this number is accurate, will the $700 billion bailout or rescue plan do enough to alleviate this problem. Additionally there is enough anecdotal evidence to suggest that this number will be rising over the next year. If you look at the reaction of the stock market this week, the answer to that question may be negative.

• It's clear we're in a recession, the big question is how long will we stay there and how long will it take the credit markets to unfreeze?

I think many things need to happen for the economy to turn around, but key elements include shoring up the unemployment situation as well as our credit markets. How quickly this will happen as well as cleaning up our mortgage situation will determine how fast we come out of the current quagmire.

As far as the local real estate market, we'll have to see how the local economy is impacted by unemployment and the current credit squeeze as well as the number of foreclosures coming online over the next few months.

 

 

 

 

The severity of the state of our credit markets, should be a wake up call for anyone who has not yet made the time to get educated on what’s been going on in our financial markets, today and over the last 20 years.

 

Understanding the speculation that led to the Great Depression, the repeal of the Glass Steagall Act and how less regulation has impacted the banking industry, the global impacts of our financial system, should all be considered as we head into uncharted territory and try to figure out how to move forward.

 

I don’t have the answer of what exactly will fix this mess, but I do know that a well thought out plan needs to be crafted, that includes restoring liquidity to our credit markets, decreasing our dependence on credit and restoring common sense rules to the process of issuing credit to consumers. It should include many other items, including accountability, that I will not go into at this time.

 

Today we lost $1.1 trillion dollars in net worth as a result of the market’s 778 point drop, which represented a 7% drop and the biggest point drop ever! In case you are wondering how this compares to previous drops, here is a list of historic stock market collapses:

 

12.8%: Drop in the Dow Jones Industrial Average (DJIA) on Black Tuesday (Oct. 29, 1929)

22.6%: 508 points Largest one-day percentage drop in stock market history (Black Monday, Oct. 19, 1987)

4.4%: 504 point drop in the DJIA on Sept. 15, 2008

(If the markets continue to drop, there are circuit breakers that were introduced after the crash in October 1987 and then further revised to take into account the increased volume and index levels. There are trigger levels or circuit breakers for a one day decline of 10%, 20% and 30% of the DJIA. These levels are calculated at the beginning of each calendar quarter using the average closing value of the DJIA for the previous month to establish specific point values for each quarter.)

For more information on this, check out the SEC’s website.

Unfortunately this credit crisis and the fall in the financial markets impacts all of us directly, through our 401k, IRA, money markets, annuities and just as importantly being unable to obtain access to home loans, business loans etc.

We need to move beyond partisan labels and the finger pointing, because the impacts, in the end, will be felt by everyone.

 

 

 

 

Disclaimer: All information in this post is subject to change without notice and is an opinion, is not guaranteed, may be time sensitive, as well as based on information collected from many sources which are not guaranteed to be reliable.

 

It was quite an eventful day as democrats and republicans tried to get a handle on what's going on with our financial system. Not sure there is a perfect solution, but what's clear is that no one wants to hand over a blank check without firm oversight. Dow was up almost 197 points on hopes that an agreement could be reached, but alas that was not to be.

Let's recap:

• Washington Mutual's branch system and deposits bought by JP Morgan after regulators seized the savings and loan. This now represents the largest bank failure in U.S. history. (This happened after the close of business)

• Weekly initial jobless claims jumped 32,000 to a seven-year high of 493,000.

• Durable goods orders fell 4.5% in August, well below the estimate of a 1.9% decline. Ex-transportation, orders fell 3.0%, south of the forecast of a 0.5% drop. Growth in Japan has been weak, and Europe appears to have entered a recession, which are most likely contributing to orders being down.

• New home sales fell 11.5% in August to an annual rate of 460,000, short of the estimate of a 1.0% decline to 510,000. The supply of homes rose from 10.3 months to 10.9 months. Existing home sales, which make up over 80% of residential sales have stabilized over the past year, but new home sales remain in a downward spiral. In order for prices can stabilize, it is critical for the market to absorb the excess inventory on the market.
• Existing Home Sales were down in August following a gain in July as tight mortgage credit was blamed on the slow down. Nationally, existing-home sales declined 2.2%.

It looks like further negotiations are needed to come to an agreement on how to handle this mess as the meeting/photo op at the White House today was unsuccessful in building a consensus. Secretary Paulson provided a 2 1/2 page outline of what he and Chairman Bernanke would like to do, which included little to no oversight, no accountability and a $700 billion price tag.

Congress is asking for:

• Legislation to help homeowners avoid foreclosure;
• limiting compensation to executives of troubled firms receiving assistance, ie, no golden parachutes;
• greater oversight than the limited bi-annual reporting requested in the current proposal;
• giving taxpayers an equity stake in companies;
• decreasing the timeframe for the Treasury workout from two years to one; and
• limiting the initial outlay followed by a reassessment early next year prior to providing additional funds.

 

We'll see what happens over the next few days!

 

 

 

Disclaimer: All information in this post is subject to change without notice and is an opinion, is not guaranteed, may be time sensitive, as well as based on information collected from many sources which are not guaranteed to be reliable.