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Housing Starts Hit Record Low in April

by Ashlie DuCros

Housing starts hit a record low in April, the U.S. Commerce Department reported, but the news wasn't all bad as single-family construction rose 2.8 percent, the second straight month of gains in that sector.

Overall, housing starts fell 13 percent to an annual rate of 458,000, driven by the decline in construction of apartment buildings and condominiums. Building permits, an indicator of future construction, fell 3.3 percent to a record low of 494,000.


Here's a look at housing starts at the regional level:

? Northeast: fell 31 percent
? Midwest: dropped 21 percent
? South: declined 21 percent
? West: rose 43 percent

Analysts believe that while joblessness will keep some people from starting new households, increased demand for more housing is inevitable.

“Now that fewer homes are hitting the market for sale, the growing U.S. population will have fewer homes to choose from,” Tony Crescenzi, chief bond-market strategist at Miller Tabak & Co. in New York, wrote in a note to clients. “This will undoubtedly be a game changer for inventories and prices.”

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The Economy: Recovery in Sight?

by Ashlie DuCros

In a testimony delivered before the Joint Economic Committee, U.S. Congress in Washington, D.C., Federal Reserve Board Chairman Ben Bernanke offered his views on recent economic developments, the outlook for the economy and current condition in financial markets - most notably pointing to the evidence that the economy may be bottoming out and is likely to turn upward later this year.

The U.S. economy has contracted sharply since last autumn, but recent data suggest that the pace of contraction may be slowing, and they include some tentative signs that the economy may be stabilizing. Consumer spending, which dropped sharply in the second half of last year, grew in the first quarter. In coming months, households' spending power will be boosted by the fiscal stimulus program, and we have seen some improvement in consumer sentiment. Nonetheless, a number of factors are likely to continue to weigh on consumer spending, among them the declines in equity and housing wealth that households have experienced over the past two years. In addition, credit conditions for consumers remain tight.

The housing market, which has been in decline for three years, has also shown some signs of leveling. Sales of existing homes have been fairly stable since late last year, and sales of new homes have firmed a bit recently, though both remain at depressed levels. Although some of the boost to sales in the market for existing homes is likely coming from foreclosures, the increased affordability of homes appears to be contributing more broadly to the steadying demand for housing. In particular, the average interest rate has dropped almost 1-3/4 percentage points since August, to about 4.8%. With sales of new homes up a bit and starts of single-family homes little changed from January through March, builders are seeing the backlog of unsold new homes decline - a precondition for any recovery in homebuilding.

We can expect economic activity to turn up later this year. The housing market is beginning to stabilize and the sharp inventory liquidation that has been in progress will slow over the next few quarters. An important caveat is that this forecast assumes continuing gradual repair of the financial system; a relapse in financial conditions would be a significant drag on economic activity and could cause the incipient recovery to stall.

Even after a recovery gets under way, the rate of growth of real economic activity is likely to remain below its longer-run potential for a while, implying that the current slack in resource utilization will increase further. We expect that the recovery will only gradually gain momentum and that economic slack will diminish slowly. In particular, businesses are likely to be cautious about hiring, implying that the unemployment rate could remain high for a time, even after economic growth resumes.

In this environment, we anticipate that inflation will remain low. Indeed, given the sizable margin of slack in resource utilization and diminished cost pressures from oil and other commodities, inflation is likely to move down some over the next year relative to its pace in 2008. However, inflation expectations, as measured by various household and business surveys, appear to have remained relatively stable, which should limit further declines in inflation.

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Housing Inventories Way Down...

by Ashlie DuCros
Housing Inventories Way Down in Southern California...

According to today’s Wall Street Journal, housing inventory, over the last quarter, is down 24.1% in San Diego County (6.1-month supply); down 25.5% in Los Angeles (7.8 months); and down 28.1 in Orange County (5.1 month). A six-month supply is generally considered a healthy market. Here are excerpts from the article by the WSJ’s James R. Hagerty:

…The Wall Street Journal's quarterly survey of 28 major metro areas shows that there is still a glut of homes available in most markets. But the glut has shrunk, and some areas are running into shortages of moderately priced homes in middle-class neighborhoods.

Many housing economists expect the market to bottom out gradually over the next couple of years, with some parts of the country stabilizing well before others. California and Washington, D.C., for instance, are likely to recover faster than South Florida, which has an immense glut of vacant condominiums, and the New York City area, which has been hurt by Wall Street's collapse, says Kenneth Rosen, chairman of the Fisher Center for Real Estate at the University of California, Berkeley…

… Among the markets Mr. Burns [John Burns, a real estate consultant in Irvine, CA] expects to recover earliest are the metro areas of Washington, D.C.; San Antonio; Raleigh, N.C.; Denver; Sacramento; and San Diego.

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Ashlie DuCros & Associates
Coldwell Banker Previews Global Luxury
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Yorba Linda CA 92887
714-743-9778
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