That seems to be the question everyone is asking. One day we hear that retail sales are up and the next we hear that home sales are down. So is the recovery here? Really?

I have to admit that I am just as confused about the economy as the next person. I do believe the recession is over but can we really call it a recovery when we have double digit unemployment and millions of homes on the verge of foreclosure? I read the other day that a majority of economists think the economy is headed in the right direct but that does not give me much comfort so I look for my leading indicators:

1. Traffic - the traffic in Raleigh at rush hour is still much lighter than it was a few years ago but heavier than it was 12 months ago. Positive

2. Shopping - the last time I was at the mall it was not crowded at all but when I went to Wal Mart and Dollar Tree it was packed. I heard Crammer (Mad Money) say that people shop at dollar stores because they are hunting for bargains not because they enjoy shopping (we do that more at malls). Negative

3. Charities - I was amazed to see how much money was raised for Haiti and there are indications that charitable gifts are on the rise after two years of decline. Since donations to charitable organizations are purely discretionary this is a good sign. Positive

So there you have it. The recovery is here, but just barely based on my top three leading indicators. The recovery is here, really. Now, when will we see wages rise and employment improve? Your guess is as good as mine.

The top article in the NYT today addresses the fragile housing recovery and points out the possibility of another decline in values. Read entire article at: http://tinyurl.com/ya5hlz2

My view is that we will not see a sustained housing recovery until unemployment drops. When people are afraid that they may lose their jobs they put off major purchases. When people do lose their jobs and their house is worth less than they can sell it for they are more likely to go into foreclosure. The combination of the fear of unemployment and the potential for more foreclosures will continue to weigh heavily on the housing market for some time.

I believe we still have several more years of weakness in the housing market. This is great news for buyers as they should be able to continue to find bargains but not so great for sellers who will need to continue to price aggressively if they want/need to sell quickly.

I am looking forward to the prospects of a continued housing recovery in 2010, especially in the Triangle market, but am also aware of how fragile the recovery is. I will continue to observe the market and let you know what I think next year!

Happy New Year

The following is reprinted with permission from Mortgage Market Guide
by Barry Habib and Sue Woodard

Homebuyer Alert…

For prospective homebuyers who are on the fence about making a home purchase, the next few months represent a countdown of sorts for two reasons.

The first of these, the coming expiration of huge tax incentives, may be a bit more obvious to most borrowers. April 30, 2010 is the last day to enter into a home purchase contract and still potentially qualify for a federal income tax credit of up to $8,000 for first-time homebuyers and up to $6,500 for repeat homebuyers. The credit can be claimed only on contracts that close by June 30, 2010.

Secondly, beyond the waning benefit of the Federal income tax incentive, another form of stimulus will soon disappear, as the Federal Reserve winds down a program that has been keeping home loan rates artificially low.

Rate Alert…

The lowest rates of 2009 were driven down to their attractive levels because of the Fed’s Mortgage Backed Securities (MBS) purchase program. Home loan rates have an inverse relationship with the value of MBS. When these securities trade higher on the market, rates move lower and vice-versa. So when the Fed originally agreed to be a big buyer, it helped provide a market for MBS, which helped keep prices high and, as a result, helped push home loan rates low.

And while the Fed continues that program through the end of March 2010, the reality is that the Fed‘s “extension” was really more of a rationing intended to prevent home loan rates from spiking as the program is phased out. It’s sort of like weaning the market off of its life-saving treatment instead of forcing it to go cold turkey.

Already, some in the media have mistakenly reported the extension of the program through March as good news, telling consumers that rates will continue to decline, and remain low into the spring. This gives a false sense of security that homebuyers and refinancers simply cannot afford.

The problem is…

Those reports do not accurately report what’s going on or where rates are really headed. That can have a very costly impact on consumers who may miss out on historically low rates if they listen to these media outlets.

Here’s what’s really going on…

In May 2009, the Federal Reserve’s purchases of MBS peaked at an average of $25 Billion per week. As of November, the average weekly purchases dropped down to $14 Billion. At the end of November, the Fed had already used over 80% of the allocated funds for MBS, meaning less than 20% remained to be used over four months.

Making the problem worse is that the Fed now has less money available to purchase MBS while at the same time, the supply of these securities has increased as a result of refinance and purchase activity that was triggered by lower rates.

Why is that important?

As the Fed now has fewer funds to last through the remaining months of the program, its ability to keep rates low will wane.
As the Fed’s program winds down and ends, we’ll likely see two things happen.

First, we will probably see higher levels of volatility—with rates sometimes shifting dramatically in the middle of the day. That means it is more important than ever for buyers to work with a knowledgeable mortgage professional who has a finger on the pulse of the market at all times and can provide trusted, proven advice.

Second, since MBS will have less support from the Fed, rates are likely to rise over time.

In short, while rates are still very good, they may not be for long.
What should you do to protect yourself?

First and foremost, work with a knowledgeable mortgage originator who studies and monitors the market.

Second, don’t be fooled by media stories that only report the headlines and don’t understand the underlying implications of the Fed’s actions. If you ever hear something in the news but aren’t sure what it means to your situation, feel free to call or email me for in-depth answers and advice.

Finally, if you haven’t yet explored how the current rate environment might benefit you or someone you know, let’s arrange a time to sit down and discuss your unique situation as well as your short- and long-term goals. Remember, rates are still very good, but they may not be for long.

Great news on the First Time Homebuyer Credit - The House of Representatives has approved legislation that would extend and expand the credit. The House vote came after the Senate voted on Monday to approve the extension but we still need to be cautious as there is more work to be done before the legislation is complete and signed off by President Obama. Indications are that the final bill, agreed upon by both the house and senate, should reach President Obama for his signature by the end of this week and his administration has indicated that the president will likely sign the bill.

Under the current proposal the income limits will be raised for individuals with incomes up to $125,000 a year and couples earning up to $225,000. The extension would cover new home purchases under contract by April 30th and will require them to be closed no later than June 30th, 2010.

The big news for current home owners is that the tax credit will be expanded to non-first time homebuyers as well. The tax credit will be slightly different for non-first time homebuyers as the credit is reduced from $8000 to $6500. In addition they must have owned a home for at least five of the past eight years.

Keep in mind that this bill is NOT final and will require the presidents’ signature. Stay tuned, and be aware that even if it is approved, it could contain further changes. Continue to watch my blog for more updates.

The other day I noticed a trend among people in the financial services and real estate industry billing themselves as “trusted advisors”. What bothers me about this self proclaimed title is that it implies that ordinary advisors are not necessarily as trust worthy. I had to ask myself, “What are these people thinking?” Are people distrustful of those in the financial services and real estate industry because they are perceived as being the catalyst for the current recession?

Gary Davis and I did a presentation a few years ago and after the presentation he told me to stop saying “trust me.” He stated it made me sound like someone that is not trustworthy. So, now when I see someone who calls themselves a “trusted advisor” the first thing I do is put my hand over my wallet. My belief is that trust is earned over time and can never be conveyed in your title or tag line. I have become wary of a person who calls themselves “trusted advisors” and was wondering if anyone else feels the same way.

When I was young I spent an entire afternoon riding the roller coaster at Dorney Park in Allentown PA (check it out at www.dorneypark.com). It was one of those great memories that only get better each time I remember it. The problem is that as I got older the joy of riding a roller coasters, specifically when I was in my 40’s at Six Flags in San Antonio, was replaced by two days of aches and pains from tired, old muscles. For those who are young, trust me that one day you too will be sore after riding a roller coaster.

That is exactly the way this recession feels to me. When I was younger and starting my career in the late 70’s, recessions were exciting times. My youth and enthusiasm (some would say naiveté) allowed me to see these times as opportunities to change the status quo, shake up the establishment and invent new processes that were better, faster and cheaper for my customers. Now it just makes me feel tired and worn out by the constant change and uncertain future. One day we have news of a recovery with housing sales increasing for the 5th straight month and the next day I read that this is not sustainable because 90% of the sales were the result of foreclosures, short sales and government stimulus programs for first time home buyers. One day the stock market is up and gas prices are down then the trend reverses.

So I made a choice today to not let these challenging times wear me out but to embrace them the way I did when I was younger. This is really a great opportunity to change the status quo, shake up the establishment, be inventive and create news ways to take better care of my customers. After all the physical muscles that were sore after riding a roller coaster are not the same as our mental muscles that can get sore from constant change and uncertainty. Our mind can be strengthened immediately by just changing our attitudes, actions and ambitions. I think if everyone did this we would see this recovery take hold quickly but for now I can at least strengthen my mind and thrive in these challenging times.

How about you?

For anyone who has been looking to buy or refinance the first thing that they notice is that interest rates have been increasing over the last two weeks. This increase has been the result of some positive news on the economy and the increase supply of mortgage bonds being sold on the market. All of those refinance loans made in the last several months are now hitting the market in the form of mortgage backed securities. This, along with the governments issuance of treasury bonds to finance the ballooning deficit, has caused an over supply in the bond market. When you add the recovering stock market to the mix you end up with people moving their investments out of relative safe but low yielding bonds to the more risky but potentially higher yields in stocks.

So the question on everyone’s minds is what is going to happen to rates? Are they going to continue to go up or will they retreat back to where they were a month ago? My assessment is that they will continue to go up as long as the economy continues to improve but I am not convinced that the economy is strong enough to sustain a recovery yet. Several months ago I predicted that the recovery would start in the second half of 2009 but I am now concerned that if interest rates continue to climb any recovery will be hard to sustain.

Where does this leave us? For the near term it means we will continue to see volatility in both the bond and securities market. Investors will continue to monitor key indicators in the market to determine if a sustainable recovery has started. Right now the indicators tell us that some days it looks like a recovery has started and other days it has not. I personally monitor over 100 different reports monthly ranging from; jobless claims to durable good to new home sales to crude oil inventories. This helps me get a sense of where the market has been so I can make an assessment of where it is going.

So what is my prediction of interest rates? Well, when people asked my father (he taught me everything I know about finance) if interest rate were going up or down he would reply: “Over the last 30 years when I apply all my experience, knowledge and expertise to predicting which way rates will go I can confidently say I am correct 50% of the time”. Now, after my 30 years in finance, I can confidently say I am just as good as my father at predicting changes in rates. After all, I am my father’s son and yes, I can confidently predict with 100% certainty that in the future interest rates will continue to go up…..and come down.

I am having a hard time understanding why people haven’t been buying homes in our current market. We have the lowest interest rates in years because the government has been purchasing mortgage backed securities, $480 billion so far. Housing affordability is at the lowest levels since 1970 when this began to be tracked. Sellers are more motivated then they have been in my life time (and I am OLD). The government is even giving people that have not owned a home in three years an $8,000 tax credit which can be applied for as soon as your buy a home.

So why are people continuing to rent instead of buy? I think the answer is simple. People buy on emotion and justify it later with facts. People have lost confidence in the market and are just plain afraid to buy anything right now. If we listen to the news we know that people continue to lose their jobs, housing values continue to decline and millions of people are being foreclosed upon.

Even thought the facts indicate that this may be the best time for many people to buy a home, the fear that exists today stops most people from acting. How about you? Are you going to look at the facts and make a rational decision as to what is best for you or are you going to allow your negative emotions to get in your way? Some people have every right to sit this one out but most of us do not. In just a couple of years many of you will look back and see an opportunity missed just because you let emotions rule the day…..but a few of you will not let negative emotions control you and they will look back and wonder why everyone else didn’t buy.

P.S. For those who know me, I can supply an endless list of factual data on why now is the time to buy but I know that until you have confidence in yourself, the market and the future, no amount of facts will matter. If you have decided to move forward by all means call me and I’ll give you all the facts you need to justify your emotional decision to buy.

Every day I read different versions of what is going on with the economy.

One week we hear that banks are healthier than we thought because the recent changes to the mark to market accounting rules allow them to value some assets higher then before. The next week we hear that the same banks can not pass the “stress test” because they don’t have enough assets.

One week we hear that unemployment is getting worse, and the next we hear it is not getting worse as fast as it has in the past, so things are looking up.

One week we hear that retail sales are at all time lows and this week we hear that WalMart is showing signs that consumers are spending more.

This week we heard from the revered Federal Reserve Chairman Ben Bernanke (we all know that people with Ben as a first name are always revered) that he sees early stages of a healing U.S. economy.  However, a Wall Street Journal article shows a picture of Bernanke with a worried look on his face (check it out at http://tinyurl.com/wsj-bernanke).

So, I’ll ask the question again.  What is going on with the economy?

I’ll let you know when I figure it out…..

With the economic markets in turmoil for over a year, it is no wonder that people are reluctant to open up their wallets and spend again. Savings rates continue to increase while consumers continue to spend less. Unemployment rates have made people nervous and the decline in value of their 401K’s has made them unsure about a secure future. All of this has created a great deal of anxiety, yet I have found that people are hungry for information that will help make sense of it all.

We all want to believe that everything will be OK but until we do, we will not be willing to participate in the economic recovery. So there’s the rub. What will it take to get the economy moving again? Faith…faith in Banks, Wall Street, Job Stability, Government and peoples’ willingness to work together to make this country great again.

I urge you to be that ray of hope in the world and do your part to stimulate the economy. This doesn’t mean that you have to spend money or give up your new savings habits but it does mean that you need to have faith in people and know we can make this happen. Stop being angry at the people that caused this mess (I know that may be hard) and start using that energy in positive ways.