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    RE/MAX Coastal Real Estate
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Economic Update
U.S. Economy
Americans’ anxiety about the economy and their jobs resurfaced in July, sending a widely followed measure of consumer confidence downward and ending three consecutive months of increases. The Conference Board reported its Consumer Confidence Index fell to 103.2 from a revised 106.2 in June, lower than the 106.2 analysts expected. Lynn Franco, director of the private research group’s Consumer Research Center, said the dip was “no cause for concern.” Franco noted, “The overall state of the economy remains healthy and consumers’ outlook suggests no storm clouds on the short-term horizon. Even the steady upward tick of fuel prices at the pump has done relatively little to dampen consumers’ spirits. Yet, while there is little to suggest a downturn in activity, there is also little to suggest a pickup.” Consumers’ sentiment contrasted with an upbeat assessment of the economy last week from Federal Reserve Chairman Alan Greenspan, who said he expected the economy to keep growing even as a flurry of job cuts from major corporations were announced. Economists closely track consumer confidence because consumer spending accounts for two-thirds of all U.S. economic activity. One component of the Conference Board report, which looks at consumers’ views of the current economic situation, fell to 118.5 from 120.8. Another component, the Expectations Index, which measures consumers’ outlook over the next six months, declined to 93.0 percent from 96.4 in June.

Real Estate Watch
Sales of previously owned U.S. houses hit a record pace in June, climbing 2.7 percent as home prices soared 14.7 percent from a year ago, the biggest jump in nearly 25 years. Sales of existing homes surged to a seasonally adjusted 7.33 million unit annual rate last month from May’s upwardly revised 7.14 million unit clip, the National Association of Realtors said. The total includes both single-family homes and condominiums. Industry analysts had expected overall sales to increase to a 7.15 million unit annual pace. Total existing home sales, single-family sales and condo sales, as well as the national median home price, all hit record levels, the Realtors’ data showed. Existing home sales also hit an all-time record pace for the second quarter of the year. The national median home price rose to $219,000, up from $191,000 a year ago and the strongest increase since November 1980, when annual appreciation was 15.6 percent, the group said. Single-family home sales climbed 2.4 percent to a record 6.37 million unit annual rate from May’s 6.22 million unit rate. Condo sales hit a fourth consecutive record, up 4.5 percent to a 960,000 unit rate from a 919,000 unit pace in May. While many economists had forecast some slowing in home sales and price appreciation this year, many have bumped their estimates higher and see 2005 as a record year.

Sources: Associated Press, Reuters

Home Banc Rates

30 Yr Fixed Conforming – 5.875%
15 Yr Fixed Conforming – 5.50%
30 Yr Fixed FHA/VA – 6.25%
5/1 Conforming ARM– 6.00%
Jumbo – CM Series
30 Yr Fixed – 6.375%
5 Yr LIBOR ARM –
5.75%
30 Yr Fixed My Community Solutions – 6.25%

Contact:
Donald Ster
904.470.2062
dster@homebanc.com

Economic Update

Strong retail sales, especially in the automotive industry, helped boost non-manufacturing activity in June at a faster than expected pace, data from the Institute for Supply Management showed. The index of business activity in the non-manufacturing sector rose to 62.2 last month, up from 58.5 in May. The index was above the 58.9 analysts were expecting. It was the 27th consecutive month of expansion. A reading of 50 or above means the services sector of the economy is expanding, while a reading below 50 indicates a contraction. Only two of the 14 industries tracked in the June study reported decreased activity from the prior month — health services and agriculture. Legal services reported the same rate of activity.

Fed Watch
Federal Reserve policy makers raised the benchmark U.S. interest rate a quarter point to 3.25 percent and restated a plan to carry out further increases at a “measured” pace. “The stance of monetary policy remains accommodative,” the Federal Open Market Committee said in a statement after a two-day meeting in Washington last week. “With underlying inflation expected to be contained, the Committee believes that policy accommodation can be removed at a pace that is likely to be measured.” Retaining the “measured” language suggests the FOMC is concerned that low long-term interest rates outside its direct control are still stimulating the economy, requiring central bankers to keep raising their overnight bank lending rate to keeping the expansion from stoking faster inflation. Last week’s rate increase was the ninth in as many meetings. All 22 of Wall Street’s biggest bond trading firms, the so-called primary dealers in government debt that trade directly with the Fed, predicted an increase to 3.25 percent, according to a Bloomberg News survey. Eighteen predict the Fed will raise its target rate to at least 3.75 percent by year-end.

Real Estate Watch
The Pending Home Sales Index, the leading indicator for the housing market, slipped from near-record levels but remains historically high, according to the National Association of Realtors. The Pending Home Sales Index, based on data collected for May, stands at 124.9, which is 2.0 percent below April but 3.7 percent above May 2004. April’s downwardly revised reading of 127.5 was second only to a record of 128.1 in October 2004. The index is based on pending sales of existing homes, including single-family and condos; a sale is pending when the contract has been signed but the transaction has not closed. Pending home sales typically close within one or two months of signing. David Lereah, NAR’s chief economist, said the index shows robust home sales can be expected for June and July. “Pending home sales are at the third highest on record, so we’re looking at a banner year for the housing market,” he said. “To put the index in perspective, we’re running about 25 percentage points higher than what is considered to be historically strong.”

Sources: Associated Press, Bloomberg, National Association of Realtors
Compiled by Donald Ster, Homebanc,dster@homebanc.com

Economic Update

U.S. Economy:

According to economists at the UCLA Anderson Forecast, the housing market will slow later this year, hurting U.S. economic growth, but not pushing the nation into recession, at least in the near term. In their quarterly forecast, UCLA economists anticipate slower economic growth through 2006, though they predict there is virtually zero chance of a recession before April 2006, the end of their forecast window. Forecast Director Edward Leamer noted that “later is not necessarily better” for a correction in the housing market, as each month of higher prices increases the size of the adjustment ahead. The UCLA analysis predicts housing starts, now running about 2 million units annually, are outpacing demand and will start to decline late this year, slowing to a 1.6 million rate by the middle of 2006. U.S. economic growth, 3.5% on an annual basis in the first quarter of 2005, is expected to fall to about the 1.5% range by mid-2006. If interest rates were to spike or home prices plunge, the slowdown could be greater, the report said. The record housing market has helped propel the economy since the 2001 recession, as consumers have bought houses in record number or borrowed against the increased value of their homes. But the UCLA economists don’t see home equity or income gains strong enough to provide a big boost to spending ahead. Higher business spending or stronger exports aren’t expected to take up the slack caused by a downturn in the housing market.

Real Estate Watch:

Housing starts held steady in May, the government reported last week, as the reading on the strength of the real estate market came in below Wall Street expectations. The Census Bureau reported that housing starts hit an annual pace of 2.01 million new homes in May, up 0.2 percent from the rate in April. Economists surveyed by Briefing.com had forecast starts at a 2.05 million pace in May. The number of building permits, a sign of builder’s confidence in the housing market, slowed in May. The government report showed an annual pace of 2.05 million permits in the period, compared with a revised 2.15 million rate in April. Economists had forecast a slower decline in the rate to 2.11 million in May. While there was little change in overall housing starts, single family home starts posted a nearly 5 percent gain to an annual pace of 1.7 million. But the pace of starts for apartment buildings or condos with five or more units fell 19 percent in the period to an annual rate of 266,000. Most of the slowing in building occurred in the South, the region responsible for roughly half the nation’s home building. Single family home building fell nearly 8 percent, and multi-family housing starts fell by almost a third. National Association of Home Builders Chief Economist David Seiders said that even though the numbers showing decline — multi-family building and home building in the South are coming off very high numbers in April — the May numbers still look solid, especially as mortgage rates stay low.

Sources: USA Today, CNN/Money
Compiled by Donald Ster, Homebanc,dster@homebanc.com

In a recent Experian/Gallup Personal Credit Index survey, consumers were asked about the housing market and mortgages. Most consumers expect housing prices and mortgage rates to rise in the next year. Only five percent of consumers expect housing prices to decline in the next year, while 70 percent expect them to increase, and another 24 percent expect them to remain steady. Among those who expect changes, most say the increases (or declines) will be modest, though about a quarter of all consumers expect housing prices to rise 10 percent or more in their area. Only about a quarter of all consumers have heard of a potential “housing bubble,” with 65 percent saying they have heard nothing about it, and another 12 percent saying “only a little.” However, when told that a housing bubble is when the prices of houses have increased so quickly and gone so high that it’s like a bubble that could burst and suddenly there could be a big drop in the price of houses, about four in ten consumers say it is either very or somewhat likely that such a situation could occur in their area within the next three years. Lower income consumers (under $40,000 annual household income) are most likely to say a housing bubble could occur in their area — 46 percent express that view, compared with about 30 to 33 percent among consumers with higher incomes.

Sources: Associated Press, The Gallup Organization

Real Estate Watch

In a recent Experian/Gallup Personal Credit Index survey, consumers were asked about the housing market and mortgages. Most consumers expect housing prices and mortgage rates to rise in the next year. Only five percent of consumers expect housing prices to decline in the next year, while 70 percent expect them to increase, and another 24 percent expect them to remain steady. Among those who expect changes, most say the increases (or declines) will be modest, though about a quarter of all consumers expect housing prices to rise 10 percent or more in their area. Only about a quarter of all consumers have heard of a potential “housing bubble,” with 65 percent saying they have heard nothing about it, and another 12 percent saying “only a little.” However, when told that a housing bubble is when the prices of houses have increased so quickly and gone so high that it’s like a bubble that could burst and suddenly there could be a big drop in the price of houses, about four in ten consumers say it is either very or somewhat likely that such a situation could occur in their area within the next three years. Lower income consumers (under $40,000 annual household income) are most likely to say a housing bubble could occur in their area — 46 percent express that view, compared with about 30 to 33 percent among consumers with higher incomes.

Sources: Associated Press, The Gallup Organization

A growing number of metropolitan areas showed double-digit annual increases in median existing-home prices in the first quarter, with an upward trend in overall price appreciation, according to the latest survey by National Association of Realtors. The association’s first-quarter metro area home price report shows a record of 66 areas with double-digit annual increases in median existing single-family home prices and only six areas posting modest price declines. The national median existing single-family home price was $188,800 in the first quarter, up 9.7 percent from the first quarter of 2004 when the median price was $172,100. The median is a typical market price where half of the homes sold for more and half sold for less. In the fourth quarter of 2004, the national annual rate of home-price appreciation was 8.8 percent. David Lereah, NAR’s chief economist, points to the tight supply of homes available for sale. “We simply don’t have enough homes on the market to meet demand,” he said. “Low mortgage interest rates are drawing new households into the market, but some are disappointed by their inability to find a home that meets their needs. We think the supply situation may improve next year when interest rates are expected to be higher - that should result in a lessening of demand and cooler price appreciation.” Three Florida metros led the nation in price growth. The strongest price increase was in Bradenton, where the first quarter price of $275,100 rose 45.6 percent from a year earlier. Next was Sarasota, at $326,300, up 36.0 percent from the first quarter of 2004. Third was the West Palm Beach-Boca Raton-Delray Beach area, with a first quarter median price of $362,800, up 35.9 percent in the last year.

Most affluent business owners and U.S. consumers fear over-speculation in the real estate market, according to a quarterly survey conducted for McDonald Financial Group, a financial services company. About 63 percent of business owners, defined in the survey as those who are owners, principals or controlling shareholders in companies, believe there is a real estate bubble compared with 60 percent of affluent consumers overall. Despite these fears, 45 percent of business owners feel that over the next three months, real estate will be the most lucrative investment vehicle – over stocks, bonds, or mutual funds. Affluent consumers felt similarly, though at slightly lower rates (37 percent). Just over half of the business owners surveyed feel the bubble will not burst for one year or more, compared to 61 percent of affluent consumers who believe it will. Fifty-nine percent of business owners are using real estate as the top investment vehicle in their retirement strategy, compared to 35 percent of affluent American consumers in the survey.