Job Losses Cause Concern

The economy continues to suffer due to troubles in the financial sector along with continued languishing of the housing market. Employment data for March gave further evidence that we may already be in a recession with 232,000 non-farm payrolls shed since the year began. The weaker housing market caused construction payrolls to drop by 51,000 last month. Fears of a recession, higher food and energy costs, and a weaker dollar will continue to be prominent risk factors affecting the economy.

Wall Street has been quite resilient in the past week despite all the negative economic news. The market brushed off the dismal March employment report and surged higher. News of capital infusions and investments in troubled financial institutions has provided some relief that the worst may be over in the financial sector. Lehman Brothers, UBS, and Washington Mutual are just some of the big banks to receive additional financial backing within the past week.

The Economy Employment data in March exhibited further weakness in the U.S. economy. Seasonally adjusted non-farm payrolls fell by a preliminary figure of 80,000 jobs in March - the largest monthly drop since March 2003 - while the unemployment rate reached 5.1%, the highest it's been since September 2005. Non-seasonally adjusted total non-farm employment in March was 482,000 higher than in March 2007, a huge drop from last month's year-over-year revised gain of 800,000 and a mere fraction of the 2,830,000 jobs created over the twelve month period ending in March 2006. Currently, non-seasonally adjusted total non-farm employment shows a figure of 137,015,000, a relatively weak 0.35% gain over March 2007.

Final estimates for fourth quarter gross domestic product remained unchanged from the advance and preliminary figure of 0.6%. Final growth estimates for the fourth quarter were substantially slower than final estimates for third quarter growth which came in at 4.9%. It was widely expected that growth would slow due to the weak housing market and credit crunch during the quarter. Improved export figures along with an upward revision in consumer spending offset weaker revisions to business and government spending.

In February, personal incomes in the United States reached $11,990.2 billion, an increase of 0.5% from an upwardly revised $11,934.2 billion in January. On an annual basis, personal incomes increased 4.6% from February 2007. Personal incomes have increased every month since April. Personal incomes in February exhibited the slowest annual growth since December 2005.

Housing Market National average mortgage rates increased slightly to 5.88% in the latest Primary Mortgage Market Survey released weekly by Freddie Mac on April 3rd. This is the first time in the past three weeks that rates have posted a weekly increase. In the week ending March 28th, the MBA's seasonally-adjusted Purchase Index fell to 356.0 from 403.7 in the previous week. Purchase applications are now at their lowest levels since March 2003. The latest figure reflects an 11.82 percent drop from last week and an 11.64 percent decline from the same period last year.

New and existing home sales moved opposite directions in February. New home sales fell 1.8% in February to a seasonally-adjusted 590,000 homes, down from a revised January figure of 601,000. This is the fourth straight month that new home sales have posted declines although sales for the previous three months were revised higher by 20,000 units. At the current sales pace, there are 9.8 months of new homes supply on the market. The number of new homes for sale continued to decline as builders have been scaling back production until the market stabilizes. New home inventory declined to 467,000 which is the lowest it has been since July 2005. The median price for a new home jumped 8.2% in February to $244,100 which is the highest it has been since November. An increase in both mortgage rates and new home prices in February pushed affordability back down to its lowest levels since November.

Annualized sales of total existing homes increased 2.9% in February to 5.03 million units. February's annualized pace is the fastest since October. Sales of existing homes are down 23.8% from the 6.60 million units in February 2007. Median existing home prices in February declined again to $195,900. Existing home prices are at their lowest levels since May 2004. Inventory of existing homes fell 3.0% from the previous month to 4.034 million units. At the current sales pace, there are 9.6 months of existing homes supply on the market. Due to falling prices, affordability for existing homes are at their highest levels since February 2003.

Local Markets: Chicago In the city of Chicago the opportunity that many developers are taking advantage of is the conversion of old office, apartment, and industrial space into gut-rehabbed condominiums. The phenomenon of the condo conversion is changing the economic and demographic landscape of a number of communities within Chicago. Low income renters are being replaced by middle class families and young professionals in search of an entry-level product around the $175,000 to $225,000 range. With mortgage rates still below historic averages many people who only had the means to rent in the past now have the opportunity to own. This concept has successfully been put into action in Chicago’s South Loop, West Loop, and River North communities where old manufacturing and meat packing building are being converted into urban lofts and condos.

Local Markets: L.A./Ventura In 2007, there were 7,565 new homes sold in Los Angeles and Ventura Counties. Of this total, 6,528 new home sales occurred in L.A. County, while 1,037 sales were recorded in Ventura. In L.A. County, the West L.A./Southbay submarket captured the most new home sales in 2007, at 2,842 total sales. In terms of holding up the best in sales volume from 2006, the San Gabriel submarket posted only a decrease of 0.9% to 743 new home sales in 2007 from 750 total net sales in 2006. The Antelope Valley submarket, which holds the highest share of detached product, but the lowest share of attached product, in L.A. County, posted the largest decrease in new home sales from 2006, down 37%.

Local Markets: Riverside/San Bernardino The Inland Empire’s new home market continues to deteriorate with each passing quarter. At the end of 2007, builders reported just 2,155 new homes sold in the fourth quarter, down more than 50% from a year ago. Annualized sales, which totaled 14,904, fell at a slower pace of 15% from the previous quarter. While the fourth quarter typically experiences a decrease in volume of sales, the sharp decline in the most recent quarter is indicative of worsening conditions. Following a slight rebound in the fourth quarter of 2006, declines in sales have generally accelerated and there are no indications that conditions will improve or stabilize in the immediate future.

Local Markets: Baltimore Year-over-year comparisons showed the Baltimore region’s market lag deepening in each quarter of 2007. While the new home market showed some deterioration for sales and prices in the first quarter, climbing cancellation rates and a tighter credit market caused steady erosion in buyer confidence, new home traffic, and sales conversions as the year rolled out. Overall net new home sales dipped 25% from third to fourth quarter, tabbing 581 sales. Year-over-year comparisons show significant erosion with volume off 45% from last year’s fourth quarter that produced 1,050 net sales. Detached sales were especially hard hit, tumbling 49% to generate 199 new home sales across all six regional jurisdictions.

Local Markets: Reno In the fourth quarter, there were a total of 155 actively selling new home projects in the Reno region, a decrease of 5 projects from a year earlier. At 123, the number of single-family projects in the region was 12 lower than the 135 open during the fourth quarter of 2006. There were 32 active attached projects in the market in the fourth quarter, an increase of 7 projects from one year earlier. The vast majority of projects were located in Washoe with just 25% located outside of this one county. Within Washoe County, 84 projects, 74%, were in the single-family segment, and the remaining 23 were multifamily projects. We estimate that approximately 176 additional projects are in the entitlement phase in the Reno region; however given current market conditions we cannot guess how many of those will actually ever open.

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