Were Housing's Troubles Just the Market Taking a Breather?

It appears the U.S. housing market is stabilizing and may have already bottomed? Are we going to follow our UK bretheren and rebound after a 12-15 month breather (See previous months posts)? Time will tell...........

End of Housing SlumpSeems to Be Drawing Near

WASHINGTON -- Recent firmness in mortgage applications and an increase in new-home sales suggest the housing slump may be nearly over, limiting the risk of wider damage to the overall economy.....

....The four-week moving average for the MBA's purchase index, which offers a less-volatile picture of the trend, has risen 12% since August, while the four-week average for the group's refinancing index has soared more than 41% since July....

....A recent pickup in new-home sales also points to stabilizing demand. The Commerce Department said yesterday that new-home sales rose 3.4% in November to an annual rate of 1.05 million units. While that pace is down more than 15% from a year earlier, it has risen since July and has held fairly steady in recent months.....

..."The net of all the numbers we've gotten is that it looks like the housing market and home sales appear to have stabilized, at least temporarily, in the latter part of the year," said Thomas Lawler, a former economist for Fannie Mae who now runs a consulting firm in Vienna, Va.

...Last month, there were 545,000 new homes on the market, or the equivalent of a 6.3-month supply at current sales rates, according to the Commerce data, down from a recent high mark of a 7.2-month supply in July.....

Christopher Conkey - WSJ

Home on the Range

AS I have been saying for awhile now, the housing market may have bottomed

From The Wall Street Journal....

WASHINGTON -- Demand for used homes rose a second straight month in November, a sign the housing slump might have hit bottom, while new data suggest growth on the manufacturing side of the economy....

...Existing-home sales increased by 0.6% to a 6.28 million annual rate, after rising 0.5% in October, the National Association of Realtors said. The back-to-back increases were the first since March and April 2005.

"As the housing market recovers from its correction, existing-home sales should be rising gradually during 2007 -- it looks like we may have reached a low point for the current cycle in September," NAR chief economist David Lereah said....

...The unexpected increase in resales followed a report this week of a pickup in November sales of new homes. Both sets of data showed home inventories declining.

....."We've entered a more sustainable period of home sales now, and we expect greater support for prices over time as inventory levels are eventually drawn down," Mr. Lereah said.....

.."Price drop is necessary to stir sales," Mr. Lereah said. "It is working. Sales are up. It appears we hit bottom."

Excerpts from Jeff Bater - WSJ Dec 28, 2006

Silicon Valley Job Market, Hot, Hot, Hot

Valley Hiring Gains Steam

GROWTH IS BROAD, BEST IN 5 1/2 YEARS, OUTPACES STATE'S


Silicon Valley's job market, which had posted slow, steady improvement, heated up in November, registering the strongest growth in 5 1/2 years.

The strong gains showed up in many industries as cautious employers, who had been holding back on hiring despite an improving economy, finally felt comfortable enough to loosen their belts a notch.

Employers in Santa Clara and San Benito counties added 13,900 jobs over the past 12 months, bringing local employment to 894,800 positions, the state's Employment Development Department said Friday. The November-to-November increase of 1.6 percent was the strongest the valley has experienced since April 2001 and even outpaced California's November employment growth of 1.1 percent, said Gary Schlossberg, a senior economist at Wells Capital Management.

The jobs report came amid other signs of economic vigor. The Nasdaq is up 8.9 percent so far this year, tech company profits are holding up and recent local surveys of consumer and executive confidence have been relatively strong.

Employers added 1,900 jobs in November compared with the month before, an increase that was more than double the average October-to-November gain since 1990.

Spectrum Economics Chairman Richard Carlson, who has been studying the valley's job market since 1975, said this is the ``first time I've been able to smile in a long time looking at these numbers.''
He said if Silicon Valley's job growth simply matched that of the state, local employment would have increased by only 8,000 jobs over the past 12 months.

``We are finally growing faster than the state,'' Carlson said. ``This is the first time this has happened in a very long while. It used to happen all the time.''

The valley's job growth outshined the state's last month in part because, as the housing market slowed down nationwide, the valley didn't take the hit in construction jobs that other parts of the state suffered. That is in part because construction ``never really boomed the way it did in the rest of the state,'' Schlossberg said. ``So you haven't seen things begin to unravel quite as rapidly in Santa Clara'' County.

Experts were pleased to see most sectors bucking up compared with a year ago, ranging from computer systems design and related services adding 1,400 jobs, to leisure and hospitality creating 2,600 more positions, primarily in eating and drinking establishments.......

By Nicole C. Wong
Mercury News

Nothing to See Here...and.......Why this is a Good Thing

Many economic pessimists took the opportunity to jump on the inflation band wagon based on the headline producer price index jumping 2% during the month of November. Trust me when I say there is nothing to see here, this is a blip due to some sort of data discrepencancy. Inflation is not a threat, the PPI is only up .9% on an annual basis, absolutely nothing to worry about.....

From the WSJ

"The Labor Department's producer-price index jumped 2%, its biggest advance since 1974, as prices for gasoline and light trucks soared during November. The core PPI, which strips out food and energy costs, advanced 1.3% in its biggest surge since 1980. The reading stands in contrast to last week's flat performance by the parallel consumer-price index; but as hair-raising as the numbers appear, economists said the data didn't scan. "Even if there once was a stable empirical relationship between wholesale and retail prices, that relationship is not reliable today," Stephen Stanley, chief economist at RBS Greenwich Capital, wrote in a note. "The gyrations in autos are the most extreme example, but by no means the only one." On an annual basis, wholesale inflation looked restrained. Core prices were higher by just 1.8%, and overall PPI was up just 0.9%."

And good news on housing. What most casual observers don't seem to understand is that housing starts down 30% year over year is great news. This is strictly a speculative inventory correction we are experiencing and the lower the starts the sooner we will reach equilibrium (we may be close), price stabilization, then gradual apprecation. So every time you see starts are down, rejoice, builders are bringing inventory in line with short term demand flux until the sheep get back in.

"In other economic reports today, new residential construction rebounded during November from a 13.7% plunge a month earlier, climbing 6.7% to a seasonally adjusted 1.588 million annual rate. A deeper look at the report showed that the housing sector remains far from turning around, however. Starts are now 29.4% lower than they were at the beginning of this year, according to Steven Wood of Insight Economics. Furthermore, building permits fell for the 10th month in a row, dropping by 3% to an annual rate of 1.506 million."

Time to Get Back into Real Estate?

Housing Market Update from CNBC (Updated 12/19/06)

Homebuilders believe the worst of the housing slump has passed and that the market will rebound in the coming year, according to a December survey by the National Association of Homebuilders.

The NAHB/Wells Fargo Housing Market index fell one point to 32 but held above the 15-year low of 30 reached in September. Lower mortgage rates and cheaper new-home prices buoyed buyer demand, the group said.

“This was the third consecutive month in which builder expectations for sales over the upcoming six-month period have improved, and it’s a good sign of things to come in the new year,” said NAHB President David Pressley.

“Other recent indicators confirm that buying conditions have improved and that demand is stabilizing - including improvements in measures of housing affordability, strengthening consumer assessments of home buying conditions and an upswing in applications for mortgages to buy homes,” added NAHB Chief Economist Dave Seiders.

That could bode well for housing starts, which the Commerce Department releases Tuesday and which many hope will remain low as builders get rid of inventory.

CNBC Video Link Ara Hovnanian (Here)

CNBC Video Link From 12/18/06 (Here)

Inflation still not a threat

I've repeatedly posted on this blog that inflation is a non issue in the U.S. economy. A lot of the headline numbers in the summer and early fall were lagging indicators and reflected some temporary higher energy fears. With the more recent inflation there is most definitely room for the Federal Reserve to cut rates in Q1-07 if they please. The non inflationary steady growth the economy is currently experiencing will be key for a continuance of the current expansion.


"WASHINGTON (AP) - Consumer inflation was a no-show in November as Americans enjoyed a third straight month of price relief led by big declines in energy costs. Meanwhile, industrial production staged a rebound led by rising output at auto factories.

The Labor Department reported yesterday that consumer prices were unchanged last month, even better than the small 0.2 percent analysts had been expecting. Prices had actually fallen by 0.5 percent in both September and October. The good news in all three months came from tumbling gasoline and other energy costs, which are retreating after a big run-up earlier in the year.....

....Core inflation, which excludes food and energy, was also unchanged in November, the best showing since June. That was likely to boost spirits at the Federal Reserve, which is working to keep inflation in check.

With one month left in 2006, overall inflation is rising at an annual rate of 2.2 percent, down from last year's 3.4 percent increase. Core inflation, excluding energy and food, has been rising at an annual rate of 2.6 percent this year, an acceleration from the 2.2 percent gain turned in last year.

The Fed's comfort zone for core inflation is between 1 percent and 2 percent. It has been working to slow the economy enough through higher borrowing costs to reduce core inflation.At their last meeting of the year on Tuesday, Fed policy makers opted to leave rates unchanged after engineering 17 consecutive rate hikes from June 2004 through June of this year.

Many economists believe the central bank is on the verge of achieving its hoped-for soft landing and will probably leave rates unchanged until May or June of next year, when the next move is expected to be a rate cut to counter unemployment, which is expected to rise in response to the slowing economy.

For November, overall energy costs were down 0.2 percent following even bigger declines of 7.2 percent in September and 7 percent in October. U.S. prices have retreated after global crude oil prices began falling this summer...."

Associated Press - Dec 16, 2006

Happy Holiday Retail Sales

As noted in my earlier posts this month (Here) ( And Here), despite the doom and gloom this holiday season was shaping up to be, well, very merry. And now, it's beginning to feel a lot like Christmas........

Outlook for Holiday Shopping Improves With Big November Retail Gains

"WASHINGTON (AP) -- The holiday shopping season may not be so bad after all. Consumers came surging back into stores in November, revving retail sales at the fastest pace in four months. The 1 percent increase reported by the Commerce Department on Wednesday was far above the 0.1 percent rise that many analysts had expected.

In another encouraging sign, the government revised the October sales performance to show a 0.1 percent decline rather than the 0.4 percent drop originally reported.

The November rebound was surprising given anecdotal evidence from retailers that sales had tapered off following a strong weekend after Thanksgiving.

"No matter what the retailers may be saying, it appears that consumers have taken out their wallets so far this holiday season," said Joel Naroff, chief economist at Naroff Economic Advisors, a private consulting firm.

The November gains were widespread, led by a 4.6 percent surge at electronics and appliance stores. That increase is attributed in part to the introduction of sought-after video game consoles such as Sony's Playstation 3 and Nintendo's Wii.

"Once again, the reports of the death of the U.S. consumer have been greatly exaggerated. This holiday season might be decent after all," said Michael Gregory, an economist at BMO Capital Markets............"

By Martin Crutsinger, AP Economics Writer

Mortgage Defaults Less in California Than Rest of U.S

So much for the wrath of defaults allegedly flooding California. Another urban legend. California borrowers are some of the most sound in the U.S. ............

"A rising number of Americans fell behind on mortgage payments during the third quarter of 2006, but California homeowners continued to fare better than most of the nation, the Mortgage Bankers Association reported Wednesday.

The MBA reported that 2.68 percent of California's 5.5 million mortgage holders were at least 30 days late on their house payments during July, August and September.
That compared to a national delinquency rate of 4.67 percent among 42.6 million home loan borrowers.

Just seven states - Washington, Oregon, Hawaii, Wyoming, Montana, North Dakota and South Dakota - had lower delinquency rates for all loans than California, according to the MBA's quarterly survey of delinquencies."

By Jim Wasserman - Sac Bee Staff Writer

Fed Stays Tight

The Fed kept rates tight at 5.25% despite the bond market demanding otherwise. I still side with many economists that believe they will continue to talk tough but cut rates in the first half of next year. This would allow the soft landing scenario and stronger growth in 2007 and 2008 and a prolonged expansion. We Shall see.......

Fed Keeps Focus on InflationEven as 'Growth Has Slowed'

Markets Discount ChanceOf Interest-Rate BoostsDespite Bank's Position

"WASHINGTON -- The Federal Reserve signaled that while the economy looks a bit weaker than a month ago, its forecast and concerns about inflation are unchanged, and thus interest rates are still more likely to rise than fall.

The Fed yesterday left its short-term interest rate at 5.25%, where it has stood since late June. In the statement accompanying its decisions, the Fed downgraded its assessment of the housing market and acknowledged "mixed" signals on growth. But its forecast of moderate growth is unchanged. Inflation remains its principal focus, and it still says its choice is whether to raise rates -- not to lower them.

Bond yields declined and stocks retraced most of their early losses as investors interpreted the statement as a concession by the Fed to markets' gloomier forecast of growth and more sanguine outlook on inflation. (See related article.) That, however, might turn out to be an overreaction. Fed Chairman Ben Bernanke has emphasized that rate actions depend on where the Fed thinks the economy and inflation will be in the future, not where they are today. And that hasn't changed.

The Fed said that "growth has slowed... partly reflecting a substantial cooling of the housing market." Its last statement, in October, didn't include the word "substantial." "Although recent indicators have been mixed, the economy seems likely to expand at a moderate pace on balance over coming quarters," it said. Inflation remains "elevated," and though expected to moderate, "inflation risks remain." Whether rates rise again will depend on new data, it said, in words identical to those used in October....

....The Fed and the markets have starkly different views of the path of interest rates, with the former maintaining a bias to raise them and the latter anticipating cuts of half to three-quarters of a percentage point in the coming year. Yesterday's statement did little to close the divide. Indeed, investors raised the probability of rate cuts a bit......

....Laurence Meyer, vice chairman of Macroeconomic Advisers, says the divide between the markets and the Fed is likely to be resolved one month at a time. If the data continue to support the Fed's stance, the Fed's language will remain the same, and markets will adjust their expectations as each Fed meeting approaches.

Richard DeKaser, chief economist at National City Corp. in Cleveland, predicted the Fed would stay on hold through all of next year. He attributed recent weakness in manufacturing to firms reacting to a buildup of inventories. Businesses are "not hunkering down and playing defense," he said, adding that his bank continues to see healthy loan demand from businesses.

But economists at UBS AG predicted rates will be cut a full percentage point next year as growth remains subpar, unemployment rises, and inflation edges down. Mr. Bernanke will be "somewhat more sensitive to growth versus inflation risks," they argued.

By Greg Ip - WSJ

Should the Fed look at Cutting Rates?

Has the Fed achieved the balance of growth and inflation allowing the U.S. economy to have a short term mid cycle slowdown? Or is it relying too much on lagging indicators, leaving rates too high ,and inverting the yield curve longer than necessary? This Wall Street Journal article compares the current economic cycle and Fed Policy with 2000-2001.

Fed Is HamperedBy Past in Effort To Sound Warning

"WASHINGTON -- Federal Reserve officials -- unlike bond investors -- think the economy is a lot sounder today than at the end of 2000 and in early 2001, when the Fed abruptly reversed course and began a string of interest-rate cuts.

Yet Fed Chairman Ben Bernanke's effort to convey the message that today's conditions are different is hampered by the Fed's lack of candor back in 2000.

Fed officials, who have universally voiced concerns about inflation, are expected to keep short-term interest rates steady at 5.25% at their policy meeting next Tuesday. But bond markets have priced in a small chance of a rate cut next week and three one-quarter percentage-point cuts over the next 12 months.

Markets anticipate those cuts in part because they see parallels to 2000. A technology-stock and investment bust began to unfold in the summer of that year, yet in November the Fed still said its principal concern was inflation, not economic growth. Seven weeks later, with stock prices tumbling and businesses canceling investment plans, the Fed made the first of 13 interest-rate cuts....

.....Fed officials thus appear content with a forecast of moderate growth over the next few quarters, then a rebound in mid-2007. "I don't think that the data we have seen are out of line" with that forecast, Federal Reserve Bank of Chicago President Michael Moskow said Monday on CNBC.com.....

Skeptics think that is bluster. "They're paid to worry about inflation, which means that until the slowdown is obvious and undeniable, they will stick to their forecasts," Ian Shepherdson, chief U.S. economist at High Frequency Economics, said in a report last week, citing the similarity to late 2000....

....Transcripts of the Fed's November 2000 meeting offer grist for the skeptics. Fed officials at the time saw ample reason to shift from their assessment that higher inflation represented a greater risk to the economy than did weaker growth, to a view that the two risks were balanced. "The balance of risks has shifted quite noticeably," then-Vice Chairman Roger Ferguson said..."

By GREG IP - WSJ

Room for the Fed to Duck and Cover

Two key pieces of data were released this morning that will give the Fed room to lower interest rates in the first quarter of 2007. Productivity was better than expected for the last two quarters and unit labor costs were lower. This is exactly what we are looking for in a soft landing scenario that will allow the Fed to lower rates before they choke off economic expansion.

Productivity Grows 0.2%
As Labor Costs Revised Lower

"WASHINGTON -- U.S. productivity growth was mildly stronger during the summer than first thought, while unit labor costs were revised sharply lower for two quarters in a favorable sign for inflation.
Nonfarm business sector productivity increased 0.2% during July through September, the Labor Department said Tuesday. Originally, Labor said productivity was unchanged during the third quarter.

Wall Street expected an upward revision in productivity for the third quarter -- but a bigger one. The median estimate of 23 economists surveyed by Dow Jones Newswires was productivity rising at a 0.5% annual rate.
There was an unrevised 1.2% increase in second-quarter productivity, which is output divided by hours worked.

Third-quarter unit labor costs -- a gauge of inflationary pressures -- rose by 2.3%. Economists expected a 3.2% advance. Labor originally estimated a 3.8% increase for the third quarter. Unit labor costs in the second quarter decreased, falling 2.4%; originally, Labor reported a 5.4% surge.

Compared to a year earlier, unit labor costs were 2.9% higher; in Labor's last productivity report, it estimated the year-over-year climb at 5.3%. Unit labor costs are the compensation paid to labor for one unit of output. Labor is considered the most important input cost to production. Higher labor costs must be either passed through by a company in the form of higher prices to its customers or absorbed in the firm's profit margins.

The Federal Reserve watches unit labor costs to weigh inflationary pressures within the economy. At their last meeting, bankers held the target for the federal funds rate at 5.25%. Economic growth has been cooling. Whether the Fed might lower rates to compensate for slowing growth hinges on their outlook for inflation."

By JEFF BATER - WSJ
December 5, 2006 9:00 a.m.

UK Home Prices Still Hot

Those of you familiar with this blog have read recently posted articles that state the correlation of home price appreciation in the UK and California is 99% since 1980. That is too much of a correlation to ignore. After taking the year off in 2005 the UK housing market unexpectedly came roaring back in 2006. Could it portend a bottoming in our market and a spring fling for 2007?

U.K. house prices climb 1.4% in November: survey

LONDON (MarketWatch) -- U.K. house prices rose 1.4% in November from October, the Nationwide Building Society said Thursday. On an annual basis, house prices are up 9.6%, the highest annual rate rise since February 2005. "Some cooling seemed to be in prospect when the growth of buyer enquiries fell quite sharply in September, but this pause in demand was short-lived. At the same time, stocks of properties for sale are at a two-year low leaving buyers chasing relatively few properties. With instructions still falling, there is no immediate improvement in supply conditions in sight," the lender said.

Good News for Goldilocks

The soft landing scenario for the U.S. economy became even more likely with today's economic data that shows the economy is still chugging along on almost all cylinders.

Growth was revised for the 3rd quarter to be quite a bit stronger. From the front page of the WSJ -

GDP Growth Revised Up to 2.2% For 3rd Period on Less Trade Drag

WASHINGTON -- The U.S. economy was stronger last summer than first thought because businesses accumulated more inventory and trade was less of a drag. Gauges measuring third-quarter inflation were lowered slightly, according to Wednesday's data revisions.
Gross domestic product increased at a 2.2% annual rate July through September, the Commerce Department said Wednesday in its first revision to third-quarter 2006 GDP. The government initially estimated growth at 1.6%......

Also, the Fed's favorite inflation indicator continued to move downward. This gives the Fed more room to maneuver funds rates down as the bond market has priced in by about 52%

...The government's price index for personal consumption increased 2.4%, lower than the previously estimated 2.5% climb but below the second quarter's 4.0% rise. The PCE price gauge excluding food and energy increased 2.2%, lower than the previously estimated 2.3% climb and below the second quarter's 2.7% rise.

What about American companies how are they doing? Well just fine thank you!

...Corporate profits after taxes climbed 4.6% to $1.167 trillion in July through September from the second quarter, the report showed. In the second quarter, profits increased 0.3%. Year-to-year, profits surged 31.5% since the third quarter of 2005.

And what are these profitable companies doing with their cash you ask?

...Businesses increased third-quarter spending more than previously thought. Outlays rose 10.0% July through September, higher than the originally estimated 8.6% advance. Business spending rose 4.4% in the second quarter. Third-quarter investment in structures surged 16.7%. Equipment and software increased 7.2%.

And lastly, don't forget about the American consumer......urh.................the energizer bunny..

Third-quarter spending by consumers increased 2.9%, down from a previously reported 3.1% but above the second quarter's 2.6% advance.

By JEFF BATER - WSJ

Strong outlook for holiday retail

Another article regarding the strong holiday shopping season

Most forecasts run 5 to 6 percent above 2005, promising a lift for the US economy.

NEW YORK – The US economy is about to get its largest jolt of the year: the annual holiday buying blitz that ends 31 days from Friday.

By the time all the wrapping paper is discarded, Americans will spend $676 per household, for an estimated total of $251 billion, according to one survey - an amount more than the annual gross domestic product of Chile and Israel combined.

The nation's holiday spending, even adjusted for inflation, sets a record every year, and this year will be no exception. Surveys and analysts predict holiday spending will rise about 5 to 6 percent over last year, which was 6.1 percent higher than 2004. If this level of spending prevails, it will give merchants - and the economy as a whole - a solid foundation going into 2007....

...Americans will be entering the holiday period with enough cash in their pockets, or room on their credit cards, to happily hit the malls, some economists and retail experts say. "Every month this year, all the way back to last October, there has been an increase in real disposable income," says Richard Feinberg, a researcher at the Purdue Retail Institute in West Lafayette, Ind....

By Ron Scherer Staff writer of The Christian Science Monitor

Predictions of a Happy Holiday Season

According to a recent article in Businessweek there are some good reasons to be merry. With low unemployment, rising wages, low inflation, lower gas prices, and a possible bottoming out in housing, expectations are for a solid holiday shopping season.

U.S.: The Housing Grinch Won't Steal Christmas

Wallets are open, and even the outlook for home sales is improving

"....Retailers can put their fears behind them--and that's good news for the overall economy this quarter and next. Consumers are heading into the holidays buoyed by the sturdiest set of spending fundamentals in years. The labor markets are strong, with the unemployment rate at a 5 1/2--year low of 4.4%. Gasoline prices are down 26% since early August, resulting in a windfall of purchasing power for household incomes...

There is still almost no evidence of spillover effects from the housing downturn on consumer buying. That means the slump remains confined to the housing sector....

...based on the latest readings on retail sales and consumer prices through October, consumer spending in the fourth quarter is speeding up...."

The real story is despite the headline numbers retail sales have improved lately as described below.

"...RECENT GOVERNMENT REPORTS on retail sales require a careful reading. October sales dropped 0.8% from September, when they fell 0.2% from August. Those declines mainly reflected back-to-back decreases in gas station receipts of 11.1% and 6%, indicating lower pump prices, not less gasoline buying. In addition, retail sales of building materials and supplies fell for the third consecutive month. For purposes of measuring GDP growth, though, the government counts that activity as part of residential construction, not consumer spending. Overall retail sales from July to October fell at a 4% annual rate, but sales excluding gas and building materials grew at a healthy 5.1% rate. The bottom line is that consumer spending on most items began the final quarter with a head of steam, fueled largely by the additional buying power fueled by falling energy prices."

And Headline inflation is decelerating quickly

"...THAT BOOST WAS EVIDENT from the overall consumer price index in September and October. It posted monthly declines of 0.5% in each month, the largest two-month drop since 1948. The fourth-quarter CPI will actually be below the level for the previous quarter, a rare event in the past half century.

That means the same paycheck this quarter will buy more goods and services than it did last quarter. For example, the Labor Dept. reported that real weekly earnings of production workers in October increased 1.3% from September, when they rose 1% from August. Those were the biggest back-to-back gains in 24 years..."

And what about housing, is it bottoming?........

"...Consumer momentum is the chief reason retailers shouldn't fret about the housing slump spoiling their holiday party. Clearly, some of the housing-related data of late have looked alarming, especially the surprisingly large drop in October housing starts. But that decline might have been an exaggeration. The huge 26.4% plunge in new home starts in the South was one of the largest on record for that region. Several analysts say the swoon might have been due to exceptionally wet weather in that region. If so, the weakness may well reverse in November....

Several sales indicators appear to be stabilizing even as builders work through their stocks of unsold homes.......Strengthening demand is particularly noticeable in the new-home market, where sales increased in both August and September, the first two-month rise in a year and a half....

...THE MOST FAVORABLE SIGN that demand for homes will continue to firm comes from weekly mortgage applications to buy a house. Not only have applications stopped falling, their three-month average is now rising after declining steeply for more than a year. The applications statistics foreshadow data on housing sales, and sales are what drive new building....

By James C. Cooper - Businessweek

Bay Area "Percolating" With High Paying Jobs

The bay area is a good prognosticator for the future health of the northern California economy including Sacramento and the Central Valley. As an anchor of innovation, this area has rapidly been growing high paying jobs (just think Google, Youtube, Facebook, etc). Make no mistake, this is not the high flying dot com era that seems like a distant memory today, rather these are solid companies with real profits and promise.

Peninsula job growth is brewing

"Job growth in the San Francisco metro area appears to be percolating, buoyed by a trend toward adding high-paying positions, according to report released Friday....

...For the 19th consecutive month, the metro area that includes San Mateo, San Francisco and Marin counties added jobs on a year-over-year basis. The area tacked on 17,400 jobs over the past year, up 1.8 percent, outpacing both the state (up 1.1 percent) and rival East Bay (up 1.6 percent), according to the state Employment Development Department....

...San Mateo County's unemployment rate slipped to 3.3 percent in October, the lowest rate since May 2001 and the lowest October rate since 2000, when it was 2.7 percent....

...Meanwhile, California's unemployment rate fell to a record low of 4.5 percent in October, down from 4.8 percent in September. It was the state's lowest rate since the current employment data series was established in 1976....

....The San Francisco metro area gained 4,800 jobs between September and October. That's several times greater than the average September-to-October increase of 1,100 over the past 15 years, said Ruth Kavanagh, West Bay labor market specialist with the Employment Development Department.... "

By Tim Simmers, BUSINESS WRITER - Insidebayarea.com (Link)

Home Prices Could Go Up in 2007

Is it possible that the worst is behind us in many housing markets? With builders starting less homes and clearing out their inventories with incentives, what many would call a "supply correction" due to excess speculation might be passing soon. Just like it was hard to call the top of the market until it passed(August 2005) it will be very hard to call the bottom (now??? or soon) until 3-6 months after it has already happened.

This business week article (Biz Week )discusses the Boston Fed's analysis (Boston Fed Link)that house prices might increase next year.

This Just In From Boston ... Prices "Could Keep Increasing"

".........What makes the Boston Fed at least mildly positive on the market? Looking at housing cycles state by state, senior economist Yolanda K. Kodrzyicki and research associate Nelson Gerew conclude that "house prices have rarely decreased in the absence of a state recession."

Here's the tentative bottom line: "Assuming continued increases in personal incomes, an increase in mortgage rates in 2006, and flat apartment rates, an extrapolation suggests that national house price increases are likely to be in the range of 1 to 3 percent in 2006 and 2 to 5 percent in 2007."

By Peter Coy - Businessweek

California Unemployment at 30 year Low

Excerpts from Sac Bee Article

"..........State officials announced Friday that California's unemployment rate fell to 4.5 percent in October, the lowest since the state began modern record-keeping in 1976. The rate dropped three-tenths of a percent since September, prompting Gov. Arnold Schwarzenegger to herald the "fantastic news.".......

........Meanwhile, Sacramento-area unemployment fell three-tenths of a point, to 3.9 percent. That's the first time it's been below 4 percent since the tech boom......

........."The restaurant industry's been hot," Lyons said, noting the wave of new places that have opened in midtown and downtown Sacramento, as well as Roseville, in the past year. The leisure and hospitality sector has added 4,600 jobs in the past year, or more than a quarter of all the new jobs in the region.
The region's manufacturing industry has stabilized. Affymetrix Inc., the West Sacramento biotech manufacturer, is expanding, while NEC Electronics' Roseville chip plant has been gradually rebounding from a severe slump, Lyons said. Siemens Transportation Systems Inc.'s light-rail plant in Sacramento is doing well, he said.......

Overall, payroll jobs have increased by 1.1 percent since last October. Roth said the job market remains healthy despite the construction slowdown.

"If you're looking for a job, I think your chances are pretty good," he said. "Labor markets are tight and employers are looking for people."

By Dale Kasler Sac Bee

Link to Sac Bee Article

A Little Perspective on Housing?

High Profits Even in Slumping Markets

In October, the average San Diego home sold for $485,000, a 5.5% decline from October of 2005. The actual number of homes sold was down 21% year-over-year. But that doesn't mean all those sellers were losers. Hardly. According to research from First American Real Estate Solutions, a real estate data unit of title insurer First American, the average home seller in San Diego made a profit of $243,000 that month. That's the different between the price they bought it at, five years ago on average, and what they sold it for today. First American calcuates that only 6% of San Diego sellers lost money on their homes, most likely because they bought it in just the past year. The story looks even better in other parts of Southern California where home prices have held up better than San Diego. In San Bernadino County, east of Los Angeles, the average home seller made a $203,000 profit on the typical $360,000 home. That's an average annual return of 25% over the four-year average holding period. The First American data is a reminder that many people still have a tremendous amount of equity in their homes, even if some their neighbors have had to lower their asking prices.

Nov 15, 2006 - Chris Palmeri - Businessweek

25% - That's a pretty good return on investment, not to mention the leveraged return is much higher.

Businessweek Article

U.S. Wages grow by most in 4 years

Despite the mainstream media complaints about only the "rich" (do people making $50k count?) real hourly wages are growing at the fastest pace in four years, and the costs of benefits (i.e. healthcare) are on track to grow at the smallest rate since the 1990's. So real disposable income for U.S. workers is on the rise and should underpin consumer spending .

"Employers are getting the upper hand on the surging costs of benefits, particularly those of health insurance. But while companies are making many employees pay a bigger share of health-care premiums, the tighter labor market is also leading Corporate America to give back some of those savings in the form of fatter paychecks.

Third-quarter figures from the employment cost index (ECI) showed benefit costs rising at a 3.3% pace from a year ago. That's the slowest gain in at least five years.........Costs in 2006 are on track to grow at the smallest rate since the late 1990s. Looking ahead, human resource companies Hewitt Associates and Towers Perrin are forecasting further deceleration in employer health-care costs for 2007.

The ECI data, which adjusts for changes in the composition of the labor force, showed that wages and salaries grew by 3.2% from a year ago, the biggest rise in more than four years. Those figures validate other pay indicators, such as average hourly earnings, which stood at a multiyear high in September.

Meanwhile, overall inflation is also slowing down as gasoline, oil, and natural gas prices have fallen off summer highs. The combination of improving income gains and slower inflation will translate into higher inflation-adjusted wages for workers and provide plenty of support for consumer spending."

By James Mehring in New YorkBy James C. Cooper - Businessweek - Nov 13, 2006

Housing Market Bottomed - Already?

Mortgage rates and new home sales

In a recent post by Dr James Hamilton of the University of San Diego Econobrowser
he suggests that there is a 4-5 month lag between interest rates (both the Fed Funds rate and mortgage rates) and it's affect on a would be new home buyer's decision to purchase. He also notes a direct correlation to anticipated Fed Funds future rates and upcoming new home sales. Most importantly as we move into a period of quite likely, lower rates, housing should improve and he suggests we may have already bottomed out.

"I also noted in my previous post that the fact that the Fed has stopped raising the fed funds rate was a factor in bringing mortgage rates down since this summer. But because mortgage rates had previously been rising up through the beginning of July, the lags in the process mean that one would expect to see home sales falling relative to the usual seasonal pattern in August and September, even though the mortgage rate by then was coming down. Given the rate hikes in the spring and early summer and the long lags in the process, I calculate that recent changes in the mortgage borrowing rate have on balance been a factor causing home sales to be lower than they otherwise would have been up through the middle of October.It is only within the last few weeks that one would expect to see home sales stop falling as a result of the policy change that first began to be recognized this summer.

It was partly because of this calculation that I have been more open than many other analysts to the possibility that the most recent data might be suggesting that the bottom for home sales may indeed have already been reached. However, even if sales now stabilize, the inventory of unsold homes will continue to put downward pressure on house prices and employment, either of which could easily become a new factor in the unfolding story. But what we can say is that one very important fundamental has now turned from negative to positive."

Posted by James Hamilton at November 8, 2006 05:25 AM

Good Riddance

If this doesn't qualify as good news, then nothing will. Though you'd have to have been sleeping under a rock to be unaware of this colossal decision, it's worth taking a moment to thank our troops for bringing this monster to justice.

BAGHDAD, Nov. 5 — Three and a half years after American troops captured Baghdad and ended the dictatorship of Saddam Hussein, the Iraqi court set up to judge the brutalities of his 24 years in power found him guilty on Sunday of crimes against humanity and sentenced him to death by hanging.

By JOHN F. BURNS and KIRK SEMPLE
Published: November 6, 2006

New York Times

Record Low Unemployment

Strong Growth In New Jobs Eases Economy Worries

Wall Street Journal


So first the BLS revised it's job figures a few months ago and found another 800,000 jobs for the past year, then they revised both August and Septembers figures yet higher again. Unemployment in the U.S. is now at a record low and the economy is generating on average 160k jobs per month.

The Labor Department said U.S. nonfarm payrolls rose by 92,000 in October as gains in service sectors made up for housing-related losses. More importantly, large revisions boosted the estimate of August and September payroll growth by a total of 139,000 jobs, bringing to about 5.8 million the number of jobs created since the current expansion began in late 2001. Meanwhile, the unemployment rate dropped to 4.4% -- the lowest level since May 2001 and well below economists' expectations.

"This tells us that the economy is weathering the housing storm quite nicely," said Joshua Shapiro, chief U.S. economist at consultancy MFR Inc.

Since the BLS can't seem to count and their numbers keep getting reconciled closer to the Household number, maybe we should just use the Household number...........maybe we had 437k jobs in October, we'll see what happens with the next revision...........

The employment report showed the job market strengthening in more ways than one. The household employment survey, a telephone poll of people in their homes, recorded a big gain of 437,000 jobs in October. Economists tend to focus more on the nonfarm payroll report, which is based on a larger sample and thus has less room for error, though recent upward revisions to payroll data have lent some credence to the higher household numbers.

But what about the average worker? Are they getting a piece of the pie? If you listen to the mainstream media you'd think no, but..............................

"Wage growth is now outpacing the rate of inflation, so that's positive for consumer-spending power," said Global Insight's Mr. Gault. "But the question then is what's going to happen on the inflation front."

By MARK WHITEHOUSE, WSJ, November 4, 2006 5:22 p.m.; Page A1

http://online.wsj.com/article/SB116256044617612537.html?mod=economy_lead_story_lsc

CA Job Market Strong

More good news...excellent job growth in the California economy

Job market stays healthy

The statewide jobless rate in September fell a tenth of a percentage point, to 4.8 percent, while employers added 17,300 payroll jobs, the Employment Development Department said Friday.

EDD said greater Sacramento's unemployment dropped two-tenths of a point, to 4.2 percent, as the four-county region gained 3,000 jobs. The area encompasses Sacramento, Placer, El Dorado and Yolo counties.

Even adding jobs to the manufacturing sector bucking the trend in the rest of U.S.

Factories added 4,000 jobs last month, while the educational and health services sector added 4,600. Leisure and hospitality gained 3,900.
"It's really broad-based," Roth said.

Sac Bee Article

By Dale Kasler - Sac Bee

The Future of California Home Prices

Home Prices

United Kingdom As shown in Exhibit 4, U.K. home prices have accelerated to an unprecedented 20% annual price appreciation over the last 3 years from 8% annual appreciation over the last 20 years.

California
Likewise, California home prices have followed a similar trend, increasing 15% per year over the last three years versus 7% annual appreciation over the last two decades.Exhibit 3 and Exhibit 4 compare the existing home price indices of California and the U.K. market. On a quarterly basis, prices have a surprising correlation at 99% since the beginning of our data series in 1983.

As you can see above the UK and California have a 99% correlation in home price appreciation over the last 23 years with the UK leading 12-15 months. If you want to see the future of home prices in California, just look to our friends over the pond. The UK market has rebounded the latter half 2006 with appreciation in markets from 6-10% (see post from October 12th).

The future of CA in 2007/8 bodes well ............

Source Credit Suisse First Boston Sept 13, 2005

California Rental Market Strong

Looks like a strong economy to me................

A Home Market That's Tight: Rentals
Apartment rents climb 6% in California as they play catch-up with sale prices.

Playing catch-up with the recent run-up in home prices, rents in large apartment complexes posted strong gains across California in the third quarter, according to data to be released today.Rents rose an average of 6% in most of the state's biggest markets, Novato, Calif.-based research firm RealFacts said. Southern California remained the West's most expensive place to rent, and the San Francisco Bay Area saw the highest rent increases, RealFacts said.

The rental market is likely to tighten further with the state's stable job market attracting more people to move here, although rising rents could slow economic growth, analysts say."We have no trouble finding tenants," said Rafael Padilla, a commercial property broker who owns about 35 apartment units in West Los Angeles. "The influx of people is still tremendous. If I lose one tenant, there are three more behind them."The average rent in Los Angeles and Orange counties rose 7.4% to $1,546 during the third quarter, making the counties the most expensive among 28 Western markets, said RealFacts, which surveyed 12,000 apartment buildings of 100 or more units in 15 states.

Rents increased 7.6% to an average of $1,452 in Ventura County. The Inland Empire is becoming more of a landlord's market as well, with rents in Riverside and San Bernardino counties rising 6% to $1,129.In Silicon Valley, the average rent jumped 10.4% to $1,450, the first double-digit increase in the high-tech heartland since the end of the dot-com boom in early 2001. Then, Santa Clara County's average rent peaked at $1,959. For all of Southern California, occupancy rose 0.4 percentage point from a year earlier to 96.2%. RealFacts analyst Chris Bates said occupancy above 96% was generally considered fully occupied — meaning that renters were having increasing difficulty finding vacancies.

LA Times - By Annette Haddad, Times Staff WriterOctober 19, 2006
http://www.latimes.com/business/la-fi-rents19oct19,0,6721437.story?coll=la-headlines-business

Homebuilder Recovery signalling upcoming strength

Is the Gloom Lifting for Homebuilders?

Some good news on the housing front. Could all this jibberish about housing bubble be over done? The stock market could be signalling a spring fling in the housing market.........

Investors drove up shares of the major U.S. homebuilders Oct. 10 after JP Morgan upgraded DR Horton (DHI), Toll Brothers (TOL), and Standard Pacific (SPF), citing stabilized inventories, while the Dallas Fed president suggested fears of a housing correction were overblown.
"While pricing, orders, and starts may still show negative trends in the near-term, we believe inventories the leading driver of the market's pullback, in our view, as well as our prior cautious stance have begun to stabilize, and in turn should drive a market recovery," the bank said Oct. 10 in a research report.

And the Fed thinks so too..........

On the same day, in a question-and-answer session after a speech in London, Dallas Federal Reserve president Richard Fisher downplayed risks of a housing market correction, which he said was one of the "most over-anticipated in history."

Source: Business WeekPublication date: October 11, 2006

Dow Even Higher

Dow Sets Another Record
As 12000 Level Nears,Gut Check for Bears;'Yesterday's Trade'
October 13, 2006 11:57 p.m.

There's little question a shift has taken place on Wall Street in recent weeks. The bears are on their heels.
Only a few months ago, many market watchers were forecasting sharp declines for stocks. A sagging housing market, record-high oil prices and an implacable Federal Reserve on a mission to crush inflation with higher rates made the bearish argument for stocks convincing.
A lot has changed.
A gauge of the shift -- as well as a catalyst -- has been the record-setting run by the Dow Jones Industrial Average, which cracked its all-time high last week and set several more records this week. The Dow finished higher again on Friday, gaining 12.81 points to 11960.41, another record that put it closer to the 12000 level. The blue-chip average gained 110.30 points this week, leaving it up 11.6% for the year.
The Standard & Poor's 500-stock index gained 2.78 to 1365.61 Friday, putting it up 9.4% for the year, and the Nasdaq added 11.11 to 2357.29, up 6.9% year-to-date.
More and more investors are growing upbeat about the market. And as stocks continue to advance, bearish portfolio managers, often measured against one of the major benchmark indexes, are being dragged into the market, sometimes almost against the will.
"People are feeling like they have to be fully invested because they're all being measured against their peers," said Michael Panzner, vice president in sales trading at Collins Stewart.
Mr. Panzner, a self-professed bear, admits the rally has confounded his expectations for a sharp downturn.

-By SCOTT PATTERSON - WSJ

British Housing Market Strong Again

Remember California and Great Britain have a 99% Housing Market Price Correlation. We're just a year or so behind..............

RICS UK Housing Market Survey September 2006
12 October 2006

45.1 percent more Chartered Surveyors reported a rise than a fall in September, up from 34.9 percent in August, and more than double the long run average of 21 percent. RICS estate agents reported that price rises are being driven by a combination of would-be buyers returning to the market and the limited availability of property.

Price increases were again led by London and the South East, boosted by the a booming City economy, with rising investor confidence pushing the stock market to its highest level since May. Estate agents report that ‘gazumping’ is taking place amid prices in the capital rising at the fastest pace since January 2000. Elsewhere, a ripple effect is taking place across the country with house prices in the North West and East Anglia picking up sharply, while Wales, Yorkshire and Humberside also recorded price rises.Buyer enquiries rose for the sixteenth consecutive month, the longest run on record.

Above trend economic growth combined with a strengthening employment market continued to boost buyer confidence but the rise is the smallest since April 2006. New instructions to sell property fell for the fourth month in a row, at the fastest pace since June 2002, indicating that households feel under little pressure to put their property on the market.Optimism in price rises is at its highest since October 2004. However, surveyors expect a modest slowdown in sales activity as interest rates are expected to rise again.

RICS UK Housing Market Survey September 2006

It's all about how confident the buyer feels, and once the fundamentals kick in, the U.S. should see stabilization and growth again.

Dow Hits All Time High

To quote Larry Kudlow, this is the greatest story never told. The economy is strong despite the main stream media's lack of acknowledgment................

Dow Industrials Close at a Record
Falling Oil Lifts the Mood,Which Is Far TamerThan at High in 2000
Hope for Goldilocks Economy

When the Dow Jones Industrial Average last closed at a record, on Jan. 14, 2000, it was a time of exultation. A lot has changed since then.
After flirting with the record for days, the Dow Industrials finally topped it yesterday, pushed higher by the hope that falling oil prices will support consumers and the housing market. The average rose 56.99 points to squeak past the old record close of 11722.98 with a finish of 11727.34. Throughout the market, the mood was more skeptical than during those heady days more than six years ago.

"A lot of people who were bearish are throwing in the towel and turning more positive," said David Briggs, head of stock trading at Federated Investors, a Pittsburgh mutual-fund group. "A lot of people have been sitting out this dance, and before we top out, I think we are going to get them in."

By E.S. BROWNINGOctober 4, 2006 -WSJ

New Homes Sales up 4.1%

It's Not All Bad News On The Housing Front

"The Census Bureau reported that sales of new homes rose 4.1% in August from a month earlier, to a seasonally adjusted annual rate of 1.050 million. The unexpected jump ran counter to other recent data depicting slowing sales."

From WSJ 9/27/06

Silicon Valley on the Rebound

Silicon Valley is rebounding - a good sign for the future of Northern California........

Valley jobs keep climbing
8-MONTH UPWARD TREND FIRST SINCE FLUSH DAYS OF DOT-COM ERA

Silicon Valley's economy continued to turn in modest job growth in August -- a heartening sign of the region's ongoing recovery from the tech bust of 2000, economists said.
The California Employment Development Department said the addition of 2,600 jobs in Santa Clara and San Benito counties -- a gain of 0.3 percent from July -- marked the first time since 2000 that the region's employment had climbed each month since January.....


Steven Cochrane of Moody's Economy.com found another encouraging note in ``the best January-to-August showing since 2000.'' The state revised the region's non-farm job numbers for July upward by 2,000 jobs, from 873,100 to 875,100. ``That's another good indicator,'' he said. Earlier this year, the EDD had revised the previous month's job gains downward for three consecutive months.....

The unemployment rate in the San Jose-Sunnyvale-Santa Clara metropolitan statistical area -- a region that also encompasses San Benito County -- was 4.7 percent in August, down from 5.0 percent in July 2006 and 5.4 percent in August 2005, the EDD reported.

By Scott Duke Harris
Mercury News

A 4th Quarter Consumer Rally?

The Fed Could Go Into Hibernation This Winter
Inflation worries are easing, and the overall economy is holding up well

Excerpts from Businessweek OCTOBER 2, 2006


THE NEWEST DEVELOPMENT helping to keep the Fed on hold is the drop in oil prices, which is a win-win situation for both economic growth and inflation....

Now, crude prices have dropped 19% from their mid-July peak of $77 per barrel, and wholesale gasoline prices have plunged 35% since early August, a decline that should translate fully into pump prices. Those developments are easing inflation worries in addition to boosting the purchasing power of consumers. The lift could be substantial -- and well-timed for the holiday buying season. The National Retail Federation is already predicting a solid 5% gain in holiday sales vs. 2005.Costlier energy acted like a tax hike on consumer incomes, but now households are getting a "tax cut." Based on a back-of-the-envelope estimate, a 20% drop in gas prices from the third quarter to the fourth quarter could free up some $65 billion in households' aftertax income, which could be either spent or saved. If only half of that money were spent, it would add almost 1.5 percentage points to the fourth quarter's increase in real consumer spending, measured at an annual rate. A stimulus of that size could lift the quarter's overall economic growth by about one full percentage point.........

DESPITE WORRIES about a wider impact of the housing downturn, consumers continue to show life in the third quarter. Outlays for both goods and services, adjusted for inflation, began the quarter with the largest monthly increase of the year, and the key components of the August retail sales data that go into the government's measure of overall consumer spending showed another healthy advance. In fact, household buying is set to make a larger contribution to economic growth this quarter than it did last quarter.

Through the second quarter, newly updated numbers from the Federal Reserve show few signs that household wealth is suffering as a result of the weakness in home prices. Overall net worth last quarter hit a record,............Homeowners' equity, the net of real estate values minus home mortgages, continued upward, although at a slower pace. The stock market has since turned around, which should give a strong boost to third-quarter net worth.

Doesn't sound like consumer doom and gloom to me. Did you note home equity and household wealth hit an all time high? More to come............

Fed is Finally Getting It

It is possible to have non inflationary growth in our economy and it's also
nice to see The Fed finally listening to the markets. The futures markets are predicting almost zero chance of any further rate hikes this year and some (myself included) even believe that a rate cut is possible in the first half of 2007. Stay tuned........

"What started out as a pause in rate increases last month began to look more like a full halt Wednesday. The Federal Reserve left its short-term interest rate target at 5.25% for a second consecutive meeting. It also warned that it remains concerned about inflation, and thus if it changes rates soon, it is more likely to raise them than lower them.
The statement accompanying its decision suggested that the Fed has grown more confident since deciding last month to end two years of steady rate increases. It cited the quickening decline in housing activity and easing inflation pressure from energy.

Investors, however, increasingly expect the Fed not just to remain on hold, but to cut rates at least once by next June and again by December 2007. Ten-year Treasury bond yields have fallen, ending Wednesday at 4.73%, down from 5.25% in late June. Those expectations may not match the Fed's, at least for now. Indeed, its statement did little to hint a rate cut would be on the table in the near term and financial markets pulled back slightly in their anticipation of one.
Stocks, meanwhile, which have been rallying because of falling oil prices and on hopes the Fed is finished raising rates and the economy escapes recession, extended their winning streak. The Dow Jones Industrial Average rose 72.28 points Wednesday to 11613.19, just 110 points short of its January 2000 record."

From the WSJ - By GREG IPSeptember 21, 2006
http://online.wsj.com/article/SB115876447709968910.html?mod=home_whats_news_us

Gas Prices Going Down

Lower Gas Prices are good news for the American Economy.

Excerpt from James D Hamilton - Econobrowser

Gasoline prices will fall even more

"At the start of this month, I joined others in predicting that U.S. gasoline prices would soon be below $2.50 a gallon. The price has already dropped 20 cents to $2.60 a gallon since then, and it now appears likely to go down at least another 30 cents from here.

Although crude oil prices can be quite hard to predict, retail gasoline prices are at times a little easier, because it often takes some time for price declines in crude oil or bulk gasoline to work their way down to the retail level. A useful advance indicator of where retail prices are headed is the NYMEX gasoline futures contract, which yesterday traded down to $1.55. This futures price does not include taxes or the wholesale and retail markup, which in recent years have averaged about 60 cents a gallon. Using that 60 cents benchmark, a retail gasoline price below $2.20 a gallon appears to be quite reasonable to anticipate."

http://www.econbrowser.com/archives/2006/09/gasoline_prices_2.html

Housing Prices in UK Accelerate

Did you know that home prices in California and the UK have a 98% correlation this century? CA followed the UK into the slowdown with about a year lag, and it will follow it out as well. The recovery started this spring in Britain, does that mean a spring bounce for CA in 2007?

http://www.rics.org/Property/Residentialproperty/ Residentialpropertymarket/market_surveys.htm

"House prices accelerate despite interest rate hikeHouse prices rose for the fifth consecutive month in August, up at the fastest pace since May 2004 says RICS' UK housing market survey published today, (14 September 2006).
35% more Chartered Surveyors reported a rise than fall in August, up from 30% in July.
RICS estate agents reported that price rises are being driven by a combination of would-be buyers returning to the market and limited availability of new property coming onto the market.
Buyer enquiries accelerated at the fastest pace since September 2003, rising for the fifteenth consecutive month in August; above trend economic growth and a firm labour market is encouraging would-be buyers to re-enter the market.
Newly agreed sales showed a strong rise in August, up at the fastest pace since last November."

Inflation is not a threat

Tame Consumer-Price Report Points to End of Rate Increases

Inflation hawks often use the headline CPI number to scare up worries about inflation. This despite the fact that it's backward looking, overstated, and the Fed uses the core number to take out volatile food and energy.
But even the CPI is trending down. This is a good sign for our economy.

"A tame reading on consumer prices lifted financial markets Friday amid hopes that waning inflation would allow the Federal Reserve to end its long march toward higher interest rates. The benign inflation figure, though, was largely the result of a small and anomalous statistical adjustment.
Easing fuel prices helped slow the increase in the Labor Department's consumer-price index to 0.2% in August from July, compared with 0.4% in July from June. The index, which measures inflation at the retail level, stood 3.8% above its year-earlier level, down from 4.1% in July. Core prices excluding food and energy, a measure watched closely by investors and the Fed, also rose 0.2% in August. Core prices were 2.8% higher than a year earlier, up from 2.7% in July.

The core-inflation figure cheered financial markets, because it suggested that a string of higher readings earlier this year may have come to an end. Before rounding, though, the core price index rose 0.242%, not far off a 0.3% rise that would have been more likely to stoke inflation worries."

http://online.wsj.com/article/SB115832305707364286.html?mod=home_whats_news_us

With thanks to the WSJ By MARK WHITEHOUSE September 16, 2006; Page A2

State job statistics stir hope

Despite the pundits of negativism, the fifth largest economy in the world appears to be in pretty good shape www.sacbee.com/103/story/24208.html

"You know it's election season when the monthly release of state data as dreadfully dry as "non-farm payroll" figures gets the political PR machines all excited.
"In August, California added 37,000 new jobs," said Gov. Arnold Schwarzenegger. "This is terrific news for all Californians."
He's right. California did add about 37,000 new jobs to its payroll last month, according to the latest figures released by the state Employment Development Department."


But what about the "housing crash" in California taking the state down?

"It's time to heave a sigh of relief, say economists, because the housing market downturn did not become a crisis. July was a rough month. Only about 6,600 jobs, seasonally adjusted, got added to the state's payroll that month, and economists were getting jittery.
But in August, California's labor market behaved itself, with sectors like service and retail picking up the slack created by the cooling-down construction sector. Unemployment was up, but by just 0.1 of a percentage point. Although construction lost 3,800 jobs, 10 other sectors -- including leisure and hospitality, and professional and business services -- added 40,700 jobs."

And the state's capital?

"The four-county Sacramento area saw its unemployment rate drop to 4.2 percent in August (down 0.3 of a percentage point from July), and the region saw 18,100 extra jobs join its payroll in the last year.
"Sacramento is typically one of the top-notch job markets in the state," said David Lyons, a labor market economist with the state Employment Development Department. "We certainly don't have any looming areas of concern."

Sounds like things are not so bad afterall.

Thanks to Sacramento Bee By Mehul Srivastava - Bee Staff Writer
Published 12:00 am PDT Saturday, September 16, 2006