Real Estate Economic update

After warnings of doom and gloom for the economy if the sequester cuts took effect, which they did, and similar warnings if Los Angeles voters rejected a 1/2 cent sales tax increase, which they did, the stock market reached an all-time high! Real estate price index showed yearly price increases of 10-14% depending on which index reported! Company profits were reported higher than expected. Results of the banking "stress test" showed that major banks were very solvent, better than expected. Unemployment dropped to 7.7%, the lowest level in 4 years! All this good news did result in some money moving from bonds (safety) to stocks, which raised rates a little. So I am reporting more of the same: low inventory, raising prices with no end in sight, and multiple offers. Prices are rising at an unprecedented pace.

Economic update (The sequester)

The big news this week was that no deal was reached to avert the sequester spending cuts. Despite warnings of "doom and gloom" the stock market closed up for the week! Obviously, investors don't  see these cuts as any real risk to the economy.  Even health care was up and defense did not see any real drops in their stock prices. These cuts are such a small percentage of the budget that I really don't see how they can have any real impact. In most cases, spending in these areas cut are pretty much rolled back a year ago levels.  The argument was that targeted cuts would have been better than across the board cuts. Unfortunately, there was no agreement on targeted cuts or limiting deductions to avoid cuts. The good news is that between these cuts, the end of year tax increase deal, the 2011 cuts, and winding down the wars the U. S. is expected to save over 4 trillion dollars over the next 10 years.  The growing economy should make tax revenues higher as well.  I would expect to see an upgrade in the United States credit rating soon. Bond yields dropped this week as well, easing interest rates! So for real estate, its more of the same. Low rates, rising prices, multiple offers and low inventory.  We are beginning to see more homes priced too high and not selling.  There is definitely a cap presenting. I think that is a sign that we will see the market normalize within a year. 

·     The 30-year mortgage rate slightly fell this week to 3.51 % from 3.56% last week, dropping near the record 3.31% low reached in November.  Last year this time, the 30-year FRM averaged 3.95%.  The 15-year rate slipped to 2.76% from  2.77% last week.  The record low is 2.63%. The 5-year Treasury-indexed hybrid adjustable-rate mortgage (ARM) averaged 2.61 percent this week with an average 0.6 point, down from last week when it averaged 2.64 percent. A year ago, the 5-year ARM averaged 2.83 percent. 1-year Treasury-indexed ARM averaged 2.64 percent this week with an average 0.4 point, down from last week when it averaged 2.65 percent. At this time last year, the 1-year ARM averaged 2.72 percent. These low rates are continuing to help the drive housing market up, while mortgage delinquencies are decreasing and home prices are steadily rising as demand surges.