Entries Tagged 'Investing' ↓

Last week the Dow Jones Industrial Average finally clawed its way back above the 10,000 point mark, a level that has not been seen since long before the current financial crisis. So with the benchmark index reaching new heights does this mean we’re finally out of the woods and can breathe easy once again? Or is this a false spike that will only lead to another downturn?

Leading economists and analysts are mixed in their outlook, but there is plenty of evidence to suggest continuing storm clouds up ahead. While the stock market may be celebrating, the larger economy still has a long way to go.

Here’s a few things to look out for:

• Unemployment is still worsening. When the national unemployment rate goes above 10% (which is already has in many states) will this further contract consumer spending? In the U.S. consumer spending still acount for 70% of GDP. In the U.K. that figure is only 65% of GDP, so perhaps we still have a ways to go down.
• The specter of inflation. The U.S. has $50 trillion (yes, trillion) in unfunded liabilities. Many analysts fear this will lead to significant inflation in the next three years.
• What about innovation? The credit crunch has most impacted small businesses and entrepreneurs, the seat of innovation in the U.S. The number of patents files has been declining, not a good sign for America’s future innovation.

So if the stock market rally isn’t indicative of the weakness in the broader economy, what’s causing it? Many argue that we’re simply seeing the effect of massive government spending. When that spending stops will the economy be able to pick up the slack?

There’s an interesting article in today’s Business Insider that argues the housing bubble, or some form of it, has returned. Is it possible that after so many months of falling prices and glum out look that the market has fully turned around so quickly? There is – surprisingly – some evidence to suggest this might be the case, at least in certain housing markets.

While home prices have not yet reached overinflated levels, the enthusiasm (some would call it mania) and the speculation of the earlier housing boom have returned. Markets like Las Vegas which were once the epicenter of the foreclosure crisis are now bustling once again.

While home prices in Vegas are down a whopping 50% off their peak reached in 2006, the inventory of houses on the market is now down to a 3-month supply. Compare this to the national average of 8.5 months of supply on the market and it becomes clear that something is going on in Las Vegas and other foreclosure centers. In addition, 40% of all transactions in Vegas are all cash, indicating that deep pocketed speculators are entering the market.

All cash deals? Speculators? Dwindling supply and transactions completed in the blink of an eye? Sounds like mania has returned to Vegas. The only question is when and if this craziness moves on to other hard-hit housing markets.

Coldwell Banker released its annual Home Price Comparison Index (HPCI) a couple of weeks ago and while the most expensive areas are no surprise, the real news was how many markets are now affordable.

In total, there are 84 U.S. markets in which the sample home price averages under $200,000. The monthly mortgage cost for homes in this price range could average less than $600, and down payments could amount to less than $4,000.

The survey found a price gap of more than $2 million between the most expensive and most affordable U.S. housing markets. In the annual comparison of similar 2,200-square foot homes in 310 U.S. housing markets, La Jolla, Calif. led the list as the most expensive real estate market in the country with an average home price of $2,125,000. Grayling, Mich., also known as the “canoe capital of the world,” ranked as the most affordable market in America, where a similarly sized home costs $112,675.

As in past years, California dominated the most expensive housing market list. Joining La Jolla in the top 10 were the California markets of Beverly Hills, Palo Alto, Santa Monica, San Francisco, Newport Beach, Palos Verdes, and San Mateo. Boston and Greenwich, CT were the only two non-California locations in the top 10.

In contrast, the midwest dominated the list of most affordable markets. Akron, OH, Canton, OH, Detroit, and Eau Claire, Wis. all placed in the top 10 cheapest housing markets.

The most expensive market outside the United States is Singapore, where an HPCI subject home averages $1.9 million U.S. dollars, ten percent lower than La Jolla. Coldwell Banker Real Estate compared a total of 57 markets in 29 countries outside of the United States, with those international home prices averaging $487,844 in U.S. dollars.

In yet another sign that the national housing market is stabilizing, the latest Case-Shiller/S&P Home Price Index reports that rose 1.6 percent from June to July across 20 major metropolitan areas collectively.

This latest bump comes on the heels of a a 1.4 percent increase for the previous month and is the third straight month that prices have risen. Despite the recent good news, prices are still down over 13% year-over-year for the composite index. Prices are lower in every one of the 20 cities surveyed compared with a year ago.

Analysts warn that a range of factors, including higher unemployment, a new wave of foreclosures, and the looming expiration of the federal tax credit for new home buyers on November 30th could put the brakes on the budding housing recovery.

Here is a chart showing the Case-Shiller Index over the last year, thanks to the San Francisco Chronicle:

The metro areas that saw the biggest price increases over the last month include Minneapolis, San Francisco, Chicago, and Atlanta. Seattle and Las Vegas were the only two cities that saw a decline in prices from June to July.

On Tuesday President Barack Obama will appoint Ben Bernanke to a second term as chairman of the Federal Reserve, to continue efforts to combat the crisis that grounded the world’s biggest economy.

Obama will stop his vacation and will announce the appointment at around 13:00 GMT (9:00 local time), official sources from White House said Monday.

“Ben approached with wisdom and calm a financial system that was on the brink, with bold action and innovative thinking that have helped efforts to break the free fall of the economy”, says a preview of the speech published by Reuters.

“Legacy” Bernanke’s first term included lowering key interest rates to near zero and flooding the financial markets with hundreds of billions of dollars to combat the credit crisis.

By giving Mr. Bernanke a second term, Obama signals that he has confidence in the Fed chairman’s ability to strengthen the economy in a period when unemployment and bankruptcies are increasing rapidly, notes Reuters.