Housing Shows Signs of Life in 2012 – 8/31/12

Housing shows signs of life in 2012…

Home prices in the U.S. increased by 0.5 percent in June compared to the same month a year ago.   This was the first increase in home prices on a 12 month basis since September 2010.  Nationally, prices jumped last quarter by the highest percentage in more than six years.  The lowest mortgage rates on record as well as a decline in sales of distressed properties may help the real estate market contribute to the economic expansion that is now in its fourth year. A more sustained rebound may require easier lending conditions. This would also give consumers a lift after a report today showed household confidence sank to the lowest level of the year.  The key is that the housing market may be forming a bottom and should continue to improve because affordability is so attractive right now.

Federal Reserve Chairman Ben Bernanke defended his unprecedented policies in his speech at the Jackson Hole Symposium today. He said additional bond purchases are an option as central bankers weigh current economic conditions. But once again, Bernanke left investors yearning for more definitive insight into what the Fed will actually do in their upcoming FOMC meeting when he said the Fed is “prepared to act” if unemployment does not improve.   The Fed Chairman was not willing to commit to action in his speech today but we think it is very likely that they will announce new stimulus at the next Federal Reserve meeting in two weeks.

Euro crisis continues…

The Eurozone continues to face headwinds as they attempt to curb their economic crisis.  Unemployment in the EU climbed again in July, while inflation increased more than expected.  There were 18 million people without jobs in July (11.3 percent) in the 17 country Eurozone, the highest number since the creation of the EU Monetary Union in 1999.

One of the primary factors contributing to increased inflationary pressures in the EU is higher commodity prices.  This increased inflationary pressure could deter the European Central Bank from cutting rates further in an effort to spur economic growth.

Many investors are expecting ECB President Mario Draghi to announce a bond-buying program in the highly touted ECB meeting next week, aimed to help reduce borrowing costs of struggling periphery countries.

Meanwhile, the divide between the stronger Northern countries and weaker Southern countries still persists.  Germany’s unemployment numbers are lower than they were a year ago, whereas Spain, Portugal and Greece have experienced drastic unemployment increases.   In Spain, 25.1 percent of people are without a job and in Greece 23.1 percent are unemployed.

The Eurozone cannot afford to continue their current campaign of unfulfilled promises and political posturing.  Investors want to see real action that is quantifiable and some form of united support from all EU countries to instill confidence that they are prepared to do whatever is necessary to preserve the Euro.   The diminishing jobs outlook, coupled with slowing growth and plummeting industrial output should leave the ECB with no other option but to intervene.

It’s hard to believe that summer is already coming to a close, be sure to enjoy the remaining few summer weeks and hopefully we will be able to witness the Cards make another incredible playoff run!