The real estate market has strengthened in 2014;
but, it is not as strong as anticipated.
One key reason: first-time home buyers.
Economists, real estate agents and many home
builders expected first-time and entry-level buyers to begin returning to the
market this year, jumpstarting the sputtering housing recovery. So far, that
hasn’t happened.
Less buying at the market’s lower end by first-time
buyers has contributed to limiting sales of existing homes so far this year to
a pace of roughly 88% of their 10-year average. It’s also a factor in stunting
sales of newly built homes to a pace of roughly 60% of their annual average
since 2000.
Some economists now predict that tight lending
standards, high prices and the sluggish economic recovery will keep
first-timers from returning in full force for several years. That likely means
a slower pace for the housing recovery, already a drag on the broader economy
in the past year.
“We likely have hit the bottom in the past six
months or so regarding the lack of participation of first-time buyers,”
said Lawrence Yun, chief economist for the National Association of Realtors.
“It may take three years to return to normal first-time-buyer
participation.” Source, in part,
The Wall Street Journal.
Most
of the time the U.S. stock market looks to 3 factors (call them the “pillars”
that support the stock market) to support its upward trend – let’s grade each
of the pillars.
CONSUMER SPENDING: I have graded this factor B (above average) based upon the
increase in retail sales as reported in recent economic reports.
THE FED AND ITS POLICIES: I continue to grade this factor an A+ (extremely favorable) because the
FED cannot do much more than it is doing to support the stock market and asset
prices.
BUSINESS PROFITABILITY: I rate this factor B- (slightly above average).
As
noted in “Heads Up!” article above, Home sales numbers had been lagging in 2014
until last week. New home sales grew 6.4% month-over-month in March while
existing home sales rose 1.3%. The MBA 30-year fixed mortgage rate
dropped to 4.33% during the week ending on May 16th marking a 2014
low, which saw increased demand in mortgage applications by .9%. United
States initial jobless claims rose to 326,000 in the week ending May 17th,
putting it near its one month moving average. U.S. Manufacturing PMI
continues to report strong numbers, increasing to 56.2 in April from 55.4 in
May. This week’s data marked progress for the U.S. economy.
Important data being released this week includes: Consumer Confidence,
Gross Domestic Product 2nd quarter estimate, Pending Home Sales,
Personal Income, and Personal Spending.
Last week, U.S. Stocks and Foreign Stocks advanced but Bonds were little changed. During the last 12 months, STOCKS outperformed BONDS.
Returns through 5-23-2014
1-week
Y-T-D
1-Year
3-Years
5-Years
10-Years
Bonds- BarCap Aggregate Index
0.0
3.5
1.7
5.0
4.9
5.0
US Stocks-Standard & Poor’s 500
1.2
3.7
17.6
15.5
19.0
7.9
Foreign Stocks- MS EAFE Developed Countries
1.2
1.9
12.6
3.6
8.5
4.3
Source:
Morningstar Workstation. Past performance is no guarantee of future
results. Indices are unmanaged and cannot be invested into directly.
Three, five and ten year returns are annualized excluding dividends.
“Your Financial
Choices”
The
show airs on WDIY Wednesday evenings, from 6-7 p.m. The show is hosted by
Valley National’s Laurie Siebert CPA, CFP®, AEP®. This week Laurie will discuss: “Financial Advisor” – What does this term
mean?
Laurie will take your calls on this topic
and other inquiries this week. WDIY is broadcast on FM 88.1 for reception in
most of the Lehigh Valley; and, it is broadcast on FM 93.9 in the Easton and
Phillipsburg area; and, it is broadcast on FM 93.7 in the Fogelsville and
Macungie area – or listen to it online from anywhere on the internet. For
more information, including how to listen to the show online, check the show’s
website www.yourfinancialchoices.com
and visit www.wdiy.org.
The weather this weekend and Memorial Day confirmed
why I love Pennsylvania. I thoroughly
enjoyed the great weather. I suspect
more so than those individuals who live in year round temperate climates. Our winter in the Northeast was tough. But, it makes us appreciate the great weather
in PA when it finally arrives.
The
stock market closed sharply higher with the broad Standard & Poor’s 500
index setting an all-time record Friday, finally punching through the 1900
level after several failures in recent weeks.
Volumes
were low ahead of Monday’s Memorial Day holiday in the U.S. Macroeconomic data
continued to be positive, though mildly so, and stocks continued their hesitant
upward drift.
Next
week is without much in the way of potentially market-moving data. Market
participants point to the June 6 release of May non-farm payroll data and the unemployment
rate as indicators that could provide the next pivot point.
Last
week, the Dow Jones Industrial Average gained 115 points, or 0.7%, to 16,606.27.
The S&P 500 closed up 23 points, to 1900.53, an all-time high, as noted.
The Nasdaq Composite index rose 2.3%, or 95, to 4185.81. The Russell 2000
small-cap index tacked on 2.1% to 1126.19.
A
positive tone Friday was set early by reassuring words from Russian President
Vladimir Putin that his country would respect the results of Ukraine’s
presidential election Sunday, says Kimberly Forrest, a senior equity analyst at
Fort Pitt Capital Group. “We’ll see whether or not he respects that,”
she adds.
Nevertheless,
it had a calming influence on a light-volume day, she says, allowing the
market’s generally upward bias of recent months to reassert itself.
Economic
data continue a two-step-forward, one-step-back dance. Last week initial weekly
jobless claims increased slightly but new-home sales improved. Friday, the
Commerce Department said new U.S. single-family home sales rose to 433,000,
modestly above consensus but better than March.
While
economic news has been generally supportive of higher share prices, the market
remains hesitant and still has a wait-and-see attitude, says Timothy Leach,
chief investment officer at U.S. Bank Wealth Management. Investors are
apprehensive about the effect on the economy of the Federal Reserve ending its
quantitative-easing strategy later this year, he adds. It’s as if the market is
trying to navigate a river of doubt, using each data point as a stone to hop
across, he says.
Despite
the worry, and with bonds still yielding so little, stocks as an asset class
win out, argues Andrew Ahrens, who runs Ahrens Investment Partners. “You
can’t get a return on your investment elsewhere…and by a process of elimination
stocks are the place to be until interest rates go up,” he says.
Separately,
the venerable Dow Theory remains in a bullish trend for stocks, according to
Ned Davis Research. For youngsters, the theory goes that industrials make the
goods and transportation firms ship them, so when there’s confirmation between
the Dow and the Dow Jones Transportation Average, it’s a signal about stock
trends.
Both
the Dow and the DJTA are above their 200-day moving average. The Dow set a new
record in the previous week and the DJTA did this past week.
It’s been a while since the last stock
market correction has occurred; the summer of 2011 to be exact. A
technical correction is defined as a price decline of at least 10% to a
security or market index following extensive price increases. Technical
market corrections are not necessarily bad as they help deter “bubble” like
valuations.
We regularly monitor economic
developments and still believe in the economic recovery and slow growth cycle.
We would advise not to be alarmed if a broad stock market correction were to
occur. Accordingly, we have placed great care in the construction of the asset
allocation to reduce the downside in portfolios if a correction were to
occur. The bond sleeve is designed to resist stock market volatility,
while the alternative strategies reduce your downside exposure by employing
various tools to hedge risks. Equities are selected based upon risk
factors that are lower as compared to their peers. It is our belief that,
through appropriate diversification, we can weather a correction while continuing
to achieve your long-term return goals.
Most
of the time the U.S. stock market looks to 3 factors (call them the “pillars”
that support the stock market) to support its upward trend – let’s grade each
of the pillars.
CONSUMER SPENDING: I have
upgraded this factor to B (above
average) based upon the increase in retail sales as reported in recent economic
reports.
THE FED AND ITS POLICIES: I continue to grade this factor an A+ (extremely favorable) because the
FED cannot do much more than it is doing to support the stock market and asset
prices.
BUSINESS PROFITABILITY: I rate this factor B- (slightly above average).
