Is The Economy Already In Recovery?

So here we got Barack “The Nazarine” Obama and socialist Democrats all lining up to go full-throttle Euro-socialist with the country.  Their arms are up in the air, they’re gnashing their teeth, wearing sackcloth and so on when it comes to the downturn in the economy.

Are things really that bad?

According to most economists, the whole problem is the housing market.  Ok.  I can buy that.  This then leaves a small fly in the ointment, when you read the following article:

Pending home sales rise in December

The number of sales contracts signed increased by 6.3%, as buyers respond to fire sale prices driven by a record number of foreclosures.

NEW YORK ( — Plunging home prices and low mortgage rates pushed homebuying activity higher in December, according to a regular industry report released on Tuesday.

The Pending Home Sales Index, from the National Association of Realtors, measures the number of sales contracts signed each month. It rose 6.3% in December to 87.7, after dropping 4% in November to a record low of 82.5.

The index was 2.1% higher than its December 2007 level.

“Significant uncertainty still clouds the housing market despite improved affordability conditions,” said Lawrence Yun, NAR’s chief economist, in a written statement. “For a sustainable housing market recovery, and a sustainable economic recovery, we need a significant housing stimulus for qualified borrowers,”

Sales of homes that were repossessed in foreclosure proceedings contributed significantly to the index’s improvement. Repossessions and short sales, when homes are sold for less than what borrowers owe on their mortgage, now account for more than 30% of all U.S. home sales, according to real estate Web site

Sales activity gained the most traction the South, where the index jumped 13% in December. The Midwest was also much higher at 12.8%. The Northeast, however, slipped by 1.7% and the index in the West fell 3.7%.

Home sales also benefited from a drop in mortgage interest rates during the month. The 30-year, fixed-rate loan averaged 5.29% for the month, with the average borrower paying a fee equal to 0.7% of the mortgage principal. That was, by far, the lowest that mortgage rates had been all year.

Cheaper real estate

The lower mortgage rates helped push housing affordability to record levels.

NAR’s Housing Affordability index improved to 158.8 in December, up more than 29% year-over-year. That makes buying a home more affordable than any time since NAR started tracking the measure in 1970.

A household earning the median U.S. family income can now afford a home of $277,000, according to NAR. That’s well above the national median home price, which was $198,600 in 2008.

Home prices have softened as foreclosures have soared, up 81% in 2008, according to RealtyTrac, the online marketer of foreclosed properties. That has added a lot of distressed homes to housing inventory, sending prices spiraling down for almost all sellers.

But home sales are still sluggish, according to Pat Newport, real estate analyst for IHS Global Insight, because lenders are still reluctant to fund many mortgages.

“What’s holding up sales right now,” he said, “is that the banks are still not lending to those with less than the best credit.” He said most banks are turning down a large percentage of the purchase applications that they receive.

Bob Moulton, president of mortgage broker Americana Mortgage Group, said he’s having trouble getting any loans approved by lenders. He recently had a client with a mediocre credit score of 630 who was putting 30% down ,and had substantial documented assets and income.

“The big commercial lenders wouldn’t even look at him,” said Moulton.

Also hurting sales, of course, is a lack of confidence among buyers amidst the uncertain economy, which has been marked by continuing job losses.

“Housing activity remains weak compared with potential demand,” said NAR President Charles McMillan, a broker with Coldwell Banker Residential Brokerage in Dallas-Fort Worth. “The market is fragile given the economic backdrop.”

Strip out all the doom-and-gloom from the article, you begin to see an indicator that the housing market is starting to slowly turn around without spending $900 billion in stimulus money.


Still not convinced?  Here’s another article from the same source:

Stocks on the rise

Wall Street advances as investors welcome better-than-expected ISM report and scoop up bank and tech shares.

NEW YORK ( — Stocks rose Wednesday morning as a better-than-expected reading on the economy and a rally in bank and tech stocks helped counter weak earnings and dour labor market reports.

The Dow Jones industrial average (INDU) added 40 points, or 0.6%, nearly two hours into the session.

The Standard & Poor’s 500 (SPX) index gained 9 points, or 1%. The Nasdaq composite (COMP) gained 28 points, or 1.9%.

Stocks rose Tuesday on better-than-expected earnings results from drugmakers and a surprise rise in a key measure of the housing market. The gains continued Wednesday morning, after a brief selloff at the open.

Economy: The Institute for Supply Management (ISM)’s services sector index improved to 42.9 from 40.1, versus forecasts for a drop to 39. It was the third economic report this week that was better than expected, following the ISM manufacturing index Monday and the pending home sales index Tuesday.

Most economists and market pros expect the recession to last through at least the end of this year. However, the reports have nonetheless helped reassure investors that some economic sectors are closer to stabilizing.

Wednesday also brought a pair of dour labor market reports ahead of the bigger government employment report due on Friday.

Payroll processing firm ADP reported that private-sector employers cut 522,000 jobs in January, versus forecasts for 535,000 job cuts. Employers cut 659,000 jobs in December.

Planned job cuts in January rose to nearly 242,000, up 45% from December, according to the latest report from outplacement firm Challenger, Gray & Christmas. The number of planned cuts was the highest level in seven years.

Company news: Late Tuesday, Walt Disney (DIS, Fortune 500) reported weaker quarterly sales and earnings that missed expectations. Shares of the Dow component fell 5% Wednesday.

Kraft Foods (KFT, Fortune 500) reported lower quarterly earnings Wednesday morning of 43 cents per share that missed expectations by a penny per share. parent Time Warner (TWX, Fortune 500) reported quarterly sales and earnings Wednesday morning that missed estimates. The company also warned that 2009 profit would be flat with the previous year.

Washington: After a narrow party-line approval in the House last week, the economic stimulus package is being debated in the Senate this week.

Separately, President Obama announced a pay cap for executives at companies receiving federal bailout money.

Bonds: Treasury prices inched higher, lowering the yield on the benchmark 10-year note to 2.87% from 2.88% Tuesday. Treasury prices and yields move in opposite directions.

Lending rates were mixed. The 3-month Libor rate rose to 1.24% Wednesday from 1.23% Tuesday, according to The overnight Libor rate fell to 0.25% from 0.31% Tuesday. Libor is a bank lending rate.

Other markets: In global trading, Asian markets ended higher and European markets rose in afternoon trading.

The dollar rose versus the euro and yen.

U.S. light crude oil for March delivery rose 81 cents to $41.59 a barrel on the New York Mercantile Exchange.

COMEX gold for April delivery rose 14.60 to $907.10 an ounce.

Gasoline prices rose 1 cent to a national average of $1.90 a gallon, according to a survey of credit-card swipes released Wednesday by motorist group AAA.

Still doubtful?  How about this article from the same source:

Mortgage applications rise

Despite the highest interest rates in more than a month, a refinancing surge sends mortgage applications up 8.6% in the last week of January.

NEW YORK (Reuters) — U.S. mortgage applications rose in the last week of January, reflecting a jump in demand for home refinancing loans even as interest rates rose to their highest levels since early December, data from an industry group showed Wednesday.

The Mortgage Bankers Association said its seasonally adjusted index of mortgage applications, which includes both purchase and refinance loans, for the week ended Jan. 30 increased 8.6% to 795.4 after slumping 38.8% during the previous week.

Borrowing costs on 30-year fixed-rate mortgages, excluding fees, averaged 5.28%, up 0.06 percentage point from the previous week. Three weeks earlier, mortgage rates were 4.89%, the lowest level recorded since the MBA survey began in 1990.

John Lonski, chief economist at Moody’s Investors Service in New York, said the recent trend higher in mortgage rates is a setback for the U.S. housing market and not what the economy needs right now.

“In this environment, we cannot afford to have mortgage rates going up, especially because of how critical the stabilization of housing is to any steadying of the overall economy,” Lonski said on Tuesday.

“We cannot have a bottoming of the macro economy without first stabilizing home sales,” he said.

Indeed, enticing mortgage rates impacts demand. The National Association of Realtors said on Tuesday its Pending Home Sales Index, based on contracts signed in December, surged 6.3% to 87.7 in December, the first increase since August.

The index, a key gauge of future home sales activity, tracks signed, not closed, contracts, so it is influenced by changes in mortgage rates.

The MBA’s seasonally adjusted purchase index fell 11.2% to 261.4 in the latest week. The four-week moving average of mortgage applications, which smooths the volatile weekly figures, was down 9.2%.

The Mortgage Bankers seasonally adjusted index of refinancing applications, meanwhile, jumped 15.8% to 3,906.3.

Mortgage rates up with Treasury yields

The U.S. housing market is in the worst downturn since the Great Depression and its impact has rippled through the recession-hit economy, as well as the rest of the world. Economists contend that the economy might not emerge from its slump unless the housing market stabilizes.

“Extraordinarily low mortgage yields are absolutely necessary to compensate potential home buyers for home price deflation risk and heightened unemployment risk,” Lonski said. “That will probably require more intervention from the government.”

The recent rise in mortgage rates can be tied to U.S. Treasury yields, which are linked to mortgage rates. Treasury yields have risen sharply on fears over surging debt issuance to fund a ballooning budget gap and an array of government rescue programs.

Before the recent rise, 30-year mortgage rates had mostly been on a downward trend ever since the Federal Reserve unveiled a plan in late November to buy as much as $500 billion of mortgage securities backed by Fannie Mae, Freddie Mac and Ginnie Mae. The program also entails buying up to $100 billion of debt issued by Fannie Mae, Freddie Mac and the Federal Home Loan Banks.

The adjustable-rate mortgage share of activity decreased to 2.1% in the latest week, down from 2.4% the previous week.

Fixed 15-year mortgage rates averaged 5.15%, up from 4.98% the previous week. Rates on one-year ARMs increased to 6.09% from 5.96%.

Now, this is just a small snapshot, and things will obviously fluctuate in the future.  Jobless rates are still on the rise, but even now they are nowhere near what they were in the 1970s.  And unemployment rates tend to lag other economic indicators.

But you’ll probably never hear that from the major media until AFTER a socialist stimulus package is passed.

One more example of how market forces actually work.


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