Real Estate, Home Loan Mortgage Rates, and the Economy

Your clients may trust you and possibly even like you, but unless they are serious, then there’s a good chance they’re not going to do business with you — at least not at the moment. So how do you separate the serious customers from those just kicking the tires, and how do you convert the prospects that might currently be “just looking” into future business?

Both serious buyers and “I’m just looking” customers share a common trait: They need information. Serious buyers are motivated buyers. They are actively searching for an immediate solution to their problem, or the tool that is going to help them accomplish their goal. This means they are researching.

So, put yourself in their shoes. If they are investigating solutions, go to the places where they can find information. This could be online forums, educational seminars, industry events and other resources and venues where they can gain the knowledge that will help them make a sound decision. Make sure you position yourself at these places, actively engage these prospects and provide them with your expert insights.

Also, provide the tools they need, such as brochures, websites and other information that will help them make a decision. But most importantly, keep the dialog going so that you can learn more about their needs, and then suggest a meeting in which you can provide them with some solutions (i.e., your pitch).

When customers tell you that they are “just looking” or still researching a solution, that tells you a world of information: They are considering making a move, but they are not quite ready or in a position to make a buy. This means they are future serious customers, and the last thing you should do is leave them alone.

Instead, tell them that you are there to help them gather the information they need in the hopes that you might do business with them in the future. Position yourself as a sort of “free consultant” as you again gather information on their needs and then offer them information that can help them make a decision in the future.

Moreover, keep the relationship going with follow-ups by signing them up for any information services, such as e-newsletters, that you offer so that they continue to benefit from your expertise and service. Tend to that kernel of a customer relationship and grow it into a serious sale

Did you know that a simple kitchen timer could be the key to keeping you on-task and making the most of your time? It’s true. Named for a tomato-shaped kitchen timer, the “Pomodoro Technique” (pomodoro is Italian for tomato) can help you fight off workday distractions that otherwise pry you from your agenda and priorities.

Francesco Cirillo, an Italian software developer, created the technique in 1992 when, as a student, he was frustrated with his inability to sit down and focus on his studies. Searching for a way to nix his procrastination and sharpen his study habits, he concluded that the “ticking clock” of deadlines is what triggers procrastination in many people, and that the key to beating it was to focus on your work, not your anxieties.

The technique is exceedingly simple:

Take a standard wind-up kitchen timer and set it for 25 minutes. For that 25 minutes, focus on nothing but the task at hand. Don’t take calls, answer emails or tend to any other business. Focus on only that task. When the timer rings, set it for five minutes and take a very short break.

Those 30 minutes represent a “pomodoro.” When you have finished four pomodoros, take a longer, 30-minute break.

Cirillo arrived at the 25-minute/five-minute time block for two reasons. First, it is a reasonable amount of time in which to place interruptions on the back burner. Nearly anything — a call, an email, a request from a coworker — can wait 25 minutes. Second, the five-minute rest period conforms to most peoples’ need to take a quick mental break from the task on which they are concentrating.

There is one additional element to the pomodoro technique: a to-do list. Use your list to outline your work, and, as you accomplish each task, log how many pomodoros it took you to accomplish each one. This will help you track the time required by each task, which will help you improve your future performance for similar work.

Use the list to also note any attempted interruptions during each pomodoro. This will not only help you get back to people in a timely fashion, but also help you identify the times in your schedule when interruptions are at their worst.

Cirillo has written a 45-page guide outlining additional tips and strategies for using the pomodoro technique that can be downloaded for free at www.pomodorotechnique.com. Try it out and see if you can drastically improve your focus — 25 minutes at a time

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It you have been listening to the national media talk about the continued decline in home prices and think it is safe to wait for the bottom a little longer, think again. There are two major components: price and payments.
For price, you need to forget the national media, and even the local news, and consider your specific neighborhood of interest and your price range. We have hit bottom in many areas of San Diego already. In fact, for homes priced under $430,000, it is an extremely hot market throughout most of San Diego. Supply and demand are reasonably balanced up to $900K and then prices get weak due primarily to the difficulty in getting a loan.
For payments (what it is actually going to cost you to live in the house), you need to pay close attention to interest rates. The table below shows the differences. A few short weeks ago, you could get a loan at 4.375% and pay $2,082 per month in principal and interest on a loan of $417,000. Today, the same loan will run about 5%. To make the same monthly payment, you can now only get a loan of $387,842. A decrease of 7%.

San Diego home values are not going to drop faster than interest rates will go up. If you’ve been thinking about getting into your first home or especially if you want to buy up in a down market, now is the time to take action. Get pre-approved by your lender first so that you and your Realtor are only looking at homes you can afford.

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Consumer credit saw its largest increase in more than two years during October, according to the Federal Reserve’s latest report released last week. October’s consumer credit increased at an annual rate of 1.75 percent for the month, marking the second straight monthly increase.

Non-revolving credit, such as home and student loans, increased at an annual rate of 6.75 percent to $1.59 trillion, while revolving credit, such as credit cards, decreased at an annual rate of 8.5 percent, dropping to $800 billion. This was the 26th straight monthly drop for credit cards.

The largest segment of the non-revolving debt’s growth was student loans, which may suggest that Americans are seeking degrees that could improve their job-hunting prospects.

Bearing that in mind, the Department of Labor reported last week that for the week ending Dec. 4, the advance figure for seasonally adjusted initial claims for unemployment benefits was 421,000, a decrease of 17,000 from the previous week’s revised figure of 438,000. Also, the four-week moving average was 427,500, a decrease of 4,000 from the previous week’s revised average of 431,500.

Meanwhile, wholesale performance was up according to the Census Bureau’s latest report last week. October sales of merchant wholesalers were $362.1 billion, up 2.2 percent from September’s revised level and up 13.4 percent from October 2009. Inventories of merchant wholesalers were $427.1 billion at the end of October, up 1.9 percent from September’s revised level and 9.9 percent from a year ago. This put the October inventory/sales ratio for merchant wholesalers at 1.18, in comparison to October 2009′s ratio of 1.22.

This week’s financial headlines kick off Tuesday with the Census Bureau’s retail sales data for November, which is expected to gain 0.8 percent over October. Tuesday will also see the Bureau of Labor Statistics’ release of the November producer price index, followed by its counterpart the consumer price index on Wednesday. Both are expected to shift little from October’s figures with the PPI forecast to increase by 0.5 percent and the CPI by 0.2 percent.

Also expected to be released on Wednesday are the Federal Reserve’s figures for November’s industrial protection and capacity utilization, which respectively report the output of U.S. factories, mines and utilities, and how much more they could have produced if needed. Production is expected to gain 0.3 percent over October. November capacity is forecast to ring in at 75 percent of production capacity.

On Thursday, the Census Bureau will release its figures for November housing construction starts and building permits, which are expected to reach 545,000 and 570,000, respectively.

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Labor productivity for the third quarter jumped by a 2.3 percent annual rate over the last period, nearly keeping pace with analyst predictions of a 2.4 percent gain.

Productivity is measured as output compared to hours worked, and according to last week’s report from the Bureau of Labor Statistics, non-farm labor output increased 3.7 percent and hours worked increased 1.4 percent in the third quarter. Non-farm business productivity increased 2.5 percent from the third quarter of 2009 to the third quarter of 2010, as output increased 4.3 percent and hours worked rose 1.7 percent.

These gains are moderate, which could point to a future uptick in hiring as businesses realize they have hit a productivity ceiling, even though the unemployment rate inched up to 9.8 percent for November, according to the Bureau of Labor Statistics report from last week. The Department of Labor reported last week that for the week ending November 27, the advance figure for seasonally adjusted initial claims was 436,000, an increase of 26,000 from the previous week’s revised figure of 410,000.

It also noted that the four-week moving average was 431,000, a decrease of 5,750 from the previous week’s revised average of 436,750. Initial claims for the same period a year ago were 475,000. “We are starting to get some self-sustaining momentum in the economy,” Nigel Gault, chief U.S. economist at IHS Global Insight, told the Associated Press. “As jobs pick up, that is making consumers a bit more confident and willing to spend.”

U.S. consumers were certainly willing to release the purse strings in November when it came to cars. November sales of cars and light trucks hit 873,323 units, according to last week’s figures from Autodata Corp. This marked a nearly 17 percent increase from November 2009. November’s sales continued October’s healthy auto sales activity, and could be an indicator that the period between Christmas and New Year’s — the most important and typically strongest period for car sales — will demonstrate a rebound for the auto industry.

“That’s when you’ll really get a sense if there’s been an improvement in consumer behavior,” Earl Hesterberg, chief executive of dealership chain Group 1 Automotive Inc., told the Wall Street Journal.

Next week’s financial news kicks off with October’s consumer credit statistics from the Federal Reserve, which tracks both revolving and non-revolving debt. While consumer credit notched up by $2.1 billion in September, market watchers are expecting the Fed to report a $3.3 billion decline for October.

Thursday will see initial jobless claims for the week starting December 4, as well as wholesale inventory data for October from the Census Bureau. September’s wholesale inventories showed a 1.5 percent increase, and October is expected to show a 0.8 increase.

On Friday, the Census Bureau also reports the balance of trade for October. September showed a drop of $44 billion, and experts are expecting the same size drop for October.

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Better-than-expected retail sales data led the week’s financial headlines, with advance estimates for October’s retail and food services sales hitting $373.1 billion, a respectable 1.2 percent jump from September and a 7.3 percent increase over October 2009.

On their own, retail trade sales were up 1.3 percent (0.5%) from September 2010, and 7.7 percent above last year; auto and other motor vehicle dealers sales were up 14.7 percent from October 2009; and nonstore retailer sales were up 13.5 percent from last year.

In related news, October’s Consumer Price Index for All Urban Consumers (CPI-U) increased 0.2 percent, the Bureau of Labor Statistics reported last week. While this was slightly below the 0.3 gain experts were hoping for, last month’s gain perpetuated a healthy trend.

The Bureau noted in its report for October that, as has often been the case in recent months, an increase in the energy index was the major factor in the overall CPI increase. The gasoline index rose for the fourth month in a row and accounted for almost 90 percent of the “all items” increase, and the household energy index rose as well.

The Producer Price Index for Finished Goods in October — also released by the Bureau last week — showed improvement similar to October’s CPI, with a PPI increase of 0.4 percent showing improvement, but not as much as experts’ expectations of a 0.8 increase. This continued a positive trend, with October’s advance following a 0.4 percent rise for both September and August.

Meanwhile, in housing news, the Census Bureau reported that construction was down for October, with construction starts on privately owned homes at a seasonally adjusted annual rate of 519,000. This was a whopping 11.7 percent below September’s revised estimate of 588,000. That said, starts on single-family homes in October were at a rate of 436,000, which is only 1.1 percent below September’s revised figure of 441,000.

However, permits were up for October, with the Census Bureau reporting that authorizations for privately owned homes were at a seasonally adjusted annual rate of 550,000. This was 0.5 percent above September’s revised rate of 547,000. Likewise, October’s authorizations for single-family homes were at a rate of 406,000, which was 1.0 percent over September’s revised figure of 402,000.

This week’s big financial and economic headlines lead tomorrow with the Bureau of Economic Analysis’s second estimate on gross domestic product for the third quarter, which is expected to increase by 2.3 percent. Despite the sometimes volatile nature of quarterly GDP data, given that the previous quarter enjoyed 2 percent growth, a follow-up increase could point to a developing trend.

Another important figure to be released tomorrow is the National Association of REALTORS®’s existing home sales data for October, which is expected to show a very slight gain. October’s home sales data from the Census Bureau will be released the day before Thanksgiving, and are expected to show an increase, as well (in terms of volume, market watchers are hoping for 320,000).

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Foreign trade topped last week’s headlines, with the foreign trade deficit for September dropping while the G-20 struggled to avert a trade war fueled by currency disputes.

The nation’s international trade deficit in goods and services decreased to $44 billion in September from August’s revised $46.5 billion. September exports were $0.5 billion more than August exports of $153.6 billion, and September imports were $2 billion less than August imports of $200.1 billion.

September’s performance beat forecasts by $1 billion and, when matched with last week’s jobless claims data, gave some cause for optimism. Last week, the Department of Labor reported that for the week ending November 6, the advance figure for seasonally adjusted initial claims was 435,000, a decrease of 24,000 from the previous week’s revised figure of 459,000. The four-week moving average was 446,500, a decrease of 10,000 from the previous week’s revised average of 456,500.

“Two months ago, three months ago there was a real growth scare and people were talking about a double dip (recession),” Jim O’Sullivan, chief economist at MF Global, told the Financial Express. “Now, the numbers are not only not showing double-dip, but they’re showing reacceleration.”

That said, the world’s financial leaders faced a rocky start to the G-20 economic summit due to the dispute over some nations keeping their currency undervalued in order to gain a trade advantage. The greatest rift was between the United States and China, with President Obama calling for nations to let the markets set the value of their currencies (rather than China’s artificially low yuan).

However, other nations pointed to the Fed’s plans to generate $600 billion in new money for the U.S. market as a way to undervalue the dollar.

This left the summit as “largely an exercise in damage limitation and papering over the huge cracks that exist between the positions of the deficit and surplus countries,” Julian Jessop, an economist with Capital Economics, stated in a report. “We do not therefore expect anything of much substance to emerge, but there is plenty of scope for continued frictions.”

This week’s financial reports kick off with retail sales data for October from the Census Bureau, which experts are expecting to increase by 0.7 percent.

Another important indicator will be October’s producer price index and consumer price index data from the Bureau of Labor Statistics, to be released on Tuesday and Wednesday, respectively. Market watchers are expecting a 0.7 percent increase in PPI and a 0.3 percent increase in CPI.

Also on Wednesday, the Census Bureau will release data on housing starts and building permits for October. Industry watchers are expecting a slight retreat from September’s performance.

Rounding out the week will be the Conference Board’s release of leading economic indicators for October. The report, which summarizes previously released data on factors such as new orders, jobless claims, money supply, average workweek, building permits and stock prices, is expected to show some slight improvement.

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Last week’s housing news led with the Census Bureau’s report that building permits for private housing in August were at a seasonally adjusted annual rate of 569,000, which was 8 percent above July’s revised rate of 559,000. Permits for single-family homes in August were at a rate of 401,000, which was 1.2 percent below the revised July figure of 406,000. In terms of construction, starts on privately owned housing in August were at a seasonally adjusted annual rate of 598,000, which was 10.5 percent above the revised July estimate of 541,000. Starts on single-family homes in August were at a rate of 438,000, which was 4.3 percent above the revised July figure of 420,000.

Sales of new homes were flat for August, with sales of new single-family homes at a seasonally adjusted annual rate of 288,000, which was unchanged from the revised July rate of 288,000. The median sales price of new houses sold in August was $204,700 and the average sales price was $248,800.

While new home sales were flat for August, the National Association of REALTORS® reported last Friday that sales of existing homes increased 7.6 percent in August to a seasonally adjusted annual rate of 4.13 million from July’s revised rate of 3.84 million. NAR’s median price for existing homes for all housing types was $178,600 in August.

NAR chalked up the post-tax credit increase to a very slowly stabilizing housing market: “Home values have shown stabilizing trends over the past year, even as the economy shed millions of jobs, because of the home buyer tax credit stimulus,” said Lawrence Yun, NAR chief economist, in a public statement. “Now that the economy is adding some jobs, the housing market needs to steadily improve and eventually stand on its own.”

This week will have a fairly busy financial calendar with the Conference Board releasing its consumer confidence figures for last month on Tuesday. Only major shifts in consumer attitudes portend sudden shifts in consumption patterns, and not much change is expected with this report.

The Bureau of Economic Analysis will release its personal income and consumption data on Thursday, which is expected to show moderate increases at the most. Flat or near-flat performance in consumer income and spending will mean no risk of inflation, and thus stable interest rates.

On Friday, the Census Bureau will release its data on construction spending for August, and with July’s data (announced this month) at a 10-year low, good news is not expected in that regard. This could be a long-term trend as some analysts do not expect new home construction to bounce back until 2012.

Also on Friday, the auto manufacturers will release their car and truck sales figures, which are a good indicator of consumer demand, given that they typically comprise 25 percent of total retail sales.

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Last week we saw rates move significantly but ended the week with rates essentially unchanged. The week’s data began on Tuesday with Retail Sales, which came in better than expected but interest in bonds remained strong as prices seemed to be correcting themselves after selling off the previous week. Wednesday saw big volatility. Tim Geithner spoke before the Senate about China and their slow currency appreciation and Japan weighed in on their potential Yen intervention. Fears surrounding these topics seemed to influence both bond and stock prices.

Thursday was pretty flat as jobless claims were surprisingly down. Producer-level inflation was tame but was slightly above expectations. Friday saw consumer price data come in essentially in line, while consumer sentiment was lower than the consensus. Poor economic conditions around the globe continue to contribute to a rate-friendly market environment. Until employment improves and/or we see rampant inflation pressure rates almost have to stay low.

This week we have a shorter economic calendar. On Tuesday we’ll see housing starts, building permits, and a Federal Open Market Committee (FOMC) announcement. Housing data has been volatile lately, as the expiration of tax credits has manipulated the natural cycle of home buying. This week is full of housing data, so watch for a clearer picture of the state of residential real estate activity. The FOMC announcement is always a highly anticipated event. Even though there is no chance that the Fed will raise the funds rate, we need to watch their statement for changes in language and tone. The Fed is extremely careful and deliberate in their wording of this announcement. Any small changes compared to last month’s text will be noticed, dissected, and acted upon.

On Wednesday no economic data will be released. On Thursday we will see initial jobless claims, as always. We also have existing home sales and leading indicators on the board. There will be a Treasury announcement on Thursday as well, in which the U.S. Treasury will outline its needs for funding via next week’s auctions. Durable goods orders and new home sales data will round out the week on Friday. Durable goods orders are a great indicator of business activity and business investment. Any noise here should be watched closely. New home sales will complete the trifecta of housing construction (starts and permits), sales of existing homes, and sales of newly built homes. As usual, when the data suggests improving economic conditions, increased business activity, and/or healthier home-buying, MBS prices are likely to falter, sending rates higher. On the other hand, data showing slowing growth, decreased business activity, and/or worsening in the housing sector is likely to help MBS prices, allowing rates to go lower.

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With all the tough gloom and doom talk out there, it might be hard to believe this, but now has never been a better time to buy a home. True, the economy is in recession, but a quick look at the real estate market — and especially a look at home financing history — will clearly demonstrate that if you are looking to buy a home or refinance your existing loan, now is the time to make your move.

For starters, new home prices are down. The Census Bureau, which has tracked new home prices since 1963, shows that the average home price for a new home is on a five-month low, with June’s median price currently at $242,00, down from February’s $284,100 (not to mention the heady days of March 2007, when the average hit $329,400). New home prices haven’t been this low since October 2003.

And while the average sale price for existing homes recently ticked up between April and June, with June at $230,900, they were previously on a downward trend that continued from 2009 into March of this year. Comparatively, the overall average existing home price for 2007 was $266,000 and 2008 was $242,700. It should also be noted that the slight upward trend experienced from April to June could have to do with the homebuyer tax incentive, which came to a close in June, so July’s and August’s statistics could show a move to even more inviting home prices.

Attractive home prices aside, the resoundingly inspiring news lies in current home financing rates. The Federal Home Loan Mortgage Corporation (Freddie Mac) recently reported that mortgage rates were at their lowest level so far this year, and that rates for conventional 30-year, fixed-rate loans were heading to an all-time low. The latest reports from Freddie Mac put 30-year mortgages at 4.72 percent. That is the lowest rate since the week ending Dec. 3, 2009, when it hit a record low of 4.71 percent.

Let’s put this in a historical context. The average interest rate for a 30-year loan was 5 percent over the last 12 months. The average over the last 10 years was 6.13 percent. The highest rate since January 1964 was 18.45 percent in October 1981. The lowest rate since January 1964 was 4.71 last December.

That is some history lesson. No matter how you slice it, today’s home prices and mortgage rates represent an historic opportunity that cannot be ignored. Whether you are seeking to purchase a home or refinance, now is your chance. Let me tell you more about how you can leverage this bright point in the economic gloom.

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