House prices continued their slide in the April, as reported in yesterday’s release of the S&P / Case-Shiller Home Price Index. The 20-city Index fell 18.1% from a year earlier, bringing national home prices back to levels seen in the 2003. All of the cities surveyed for the Index showed year-over-year declines. Average home prices are down 32.6% from their mid-2006 peak.
Positively, prices declined only 0.9% from March, the smallest monthly decline in almost two years. Also, thirteen of the 20 cities surveyed saw a deceleration in the year-over-year rate of decline which may suggest an inflection point in the housing market has been reached.
Harmonic Investment Advisors is pleased to note the recent deceleration in the rate of home price declines, but believes home prices are likely to continue to fall as the overhang of unsold homes appears to far outweigh the number of potential buyers. Reports indicate financial institutions may be hoarding properties or forestalling foreclosure to prevent an even larger glut of homes on the market. Further, the pool of potential buyers is negatively impacted by the increased tightening of credit available to fund purchases and by discomfort caused by declining investment market values and rising unemployment. Given that the home is the most valuable asset on most Americans’ personal balance sheet, declines in home prices reinforce the negative sentiment and increase the financial pressure that has contributed to this consumer-led recession.
However, HIA notes that falling home prices have begun to attract some buyers, as suggested by the recently reported increase in sales of existing and new homes. The upside of falling house prices is, of course, greater affordability for buyers, which ultimately will be a factor in slowing and reversing the economic downturn.
S&P / Case-Shiller 20-City Home Price Index - April 2009
Jul 02th
Unemployment Situation – June 2009
Author: Kenn Lamson
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The Labor Department reported that the number of unemployed Americans rose by 467,000 in June, raising the unemployment rate to 9.5%. May’s US unemployment rate was 9.4%. June’s losses bring the unemployment level to its highest since August 1983. Today’s release brings to about 6.5 million the total number of lost jobs since the recession began in December 2007, the majority of which have been shed since mid-2008.
Jobs growth was negative in all major industry groups surveyed except healthcare, which showed a slight gain.
If workers who were underemployed or who have stopped looking for work are included in the tally the percentage of unemployed plus “marginally attached” workers rose to 16.5%, up from 16.4% in May.
Because the unemployment statistics are lagging indicators, this report does not appear to call into question the idea that the economy is gradually stabilizing.
The consensus among economists appears to be shifting towards Harmonic Investment Advisors consistently held position that the unemployment rate is likely to continue to rise to at least 10%. Given that about 70% of US economic activity is driven by the consumer, the negative psychological impact of the fear of losing one’s job and the financial impact of actually doing so will continue the act as a drag on the economy.
HIA portfolio structures stand “neutral” on stocks of businesses dependent on consumer spending, having moved from an “underweight” position in February. We continue to search for high quality firms that will be survivors of the downturn and that are trading at attractive valuations in anticipation of increasing the cyclical bias of our strategies later this year.
US Unemployment Rate (white, left scale) Nonfarm Payrolls, monthly change (red, right scale) (December 1999 – June 2009)