Sign of the slump or just a gimmick?

Posted on June 6, 2007 by grim

From the Jersey Journal:

Condo auction has buzz going

Traditionally, when developers have problems selling the last of their units and run out of rabbits to pull out of their hats, they turn to an auction to unload the properties quickly.

But now one Hoboken-based developer, Erik Kaiser, of REMI Companies, is flipping the script by holding an auction on the front end of sales, on June 24, at the Hyatt Regency in Jersey City, where he hopes to unload 40 units within several hours.

The property is the 128-unit Velocity, nestled in the underdeveloped southwest section of Hoboken, on Jackson Street between Sixth and Seventh streets.
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The building is also, however, in Hoboken’s highest crime area, a fact that is not overlooked by the developer, who is promising 64 cameras in and around the building, along with magnetic key entrance into the building and garage.

The unconventional auction has caught a lot of media attention, with mentions in the New York Times and the New York Post, as observers and pundits try to explain the auction in the context of the region’s real estate market.

Is it a sign of a slump?

Are the units a tough sell in the one area of Hoboken that has yet to be touched by the real estate boom?

The answer appears to be no to both questions.
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Secondly, developments tend to grab some attention at their outset, propelling sales and interest. The Velocity does not have that luxury anymore, so the developer came up with the marketing gimmick to draw attention.

“We wanted to have one year worth of marketing efforts wrapped up in one day,” said Kaiser, adding that he expects to sell all 40 units at the auction.

Real estate experts tell me that under perfect circumstances, such as perfect pricing in a hot market, a developer would move as many as 10 units a month.
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“We are confident in our product, and we trust the consumer to set the price,” Kaiser said.

That is, if other bidders don’t drive up the prices.

“There may be some steals, but that’s only if there is a low turnout at the auction,” said one local developer. “But with all the attention, that will not likely be the case.”

Posted in National Real Estate, New Development | 218 Comments

Housing Inventories Sharply Higher

Posted on June 6, 2007 by grim

From the Wall Street Journal:

Rise in Home Inventory Continues to Hurt Prices
By JAMES R. HAGERTY
June 6, 2007; Page D3

Growing inventories of unsold homes continue to weigh on the U.S. housing market, portending more downward pressure on prices, the latest data show.

The number of homes listed for sale in 18 major U.S. metropolitan areas at the end of May was up 5.1% from April, according to figures compiled by ZipRealty Inc., a national real-estate brokerage firm based in Emeryville, Calif. The data cover all listings of single-family homes, condos and town houses on local multiple-listing services in those areas.

The sizable increase is notable because, on a national basis, inventories of listed homes have typically been little changed in May during the past two decades, according to Credit Suisse Group. May is one of the peak home-selling months because families with children often aim to move during the summer vacation.

Some of the biggest inventory increases last month came in the metro areas of Seattle, up 12% from April; San Francisco, 11%; Los Angeles, 10%; and Washington, D.C., 9%.

Inventories also are up sharply from a year earlier. For the 15 cities for which year-earlier comparisons were available, combined inventory was up 29% from May 2006.

The housing market has been cooling for the past two years after a buying frenzy in the first half of the decade. Prices have flattened or declined moderately in much of the country. A tightening of lending standards has put more downward pressure on the market by making it harder, if not impossible, for some potential buyers to get credit. Meanwhile, rising foreclosures are dumping more homes on the market.

Posted in Housing Bubble, National Real Estate | 4 Comments

New Jersey Primaries

Posted on June 6, 2007 by grim

From NJ.com:

Six incumbent legislators lose primary battles

Six state lawmakers facing primary challenges saw their days in the Legislature numbered while 11 incumbents faced down primary challenges and were poised to return to Trenton.
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In Essex County’s 28th District, Democratic Sen. Ronald Rice defeated a challenger endorsed by Newark Mayor Cory Booker. Rice’s running mates, Assemblyman Craig Stanley and Assemblywoman Oadline Truitt (both D-Essex), were trailing and in danger of losing to the Booker slate.

Six-term Assemblyman Wilfredo Caraballo (D-Essex), facing the fight of his political life prompted by his vote last summer against Gov. Jon Corzine’s proposed budget, lost to another Booker-supported slate.

“I got steamrolled, what can I tell you. The era of the bosses is not over,” Caraballo said.

In a race for an open Republican seat, Morris Plains lawyer Jay Webber defeated former Kinnelon Councilman Larry Casha for the seat now held by Assemblyman Joe Pennachio (R-Morris). Pennachio is unopposed for the GOP nomination to succeed Sen. Robert Martin (R-Morris), who is retiring.

Of the five incumbent assemblymen who risked their careers on a chance to move up to the Senate, two were victorious, one was in a neck-and-neck race and two were defeated.

Assemblyman Guy Gregg (R-Morris), seeking the seat of retiring Sen. Robert Littell (R-Sussex), lost to Sussex County Freeholder Steve Oroho, who was running on a ticket with Littell’s daughter, Assemblywoman Alison Littell McHose (R-Sussex).

County residence is a campaign issue in the 24th legislative district, which includes five towns in Morris County, two in Hunterdon County and all of Sussex County. Oroho argued Sussex County deserves the Senate seat, as Morris has two other senators.

In Hudson County, Democratic Assemblymen Brian Stack defeated fellow Democratic Assemblyman Silverio Vega for the seat held by Sen. Bernard Kenny, who is retiring after 20 years.

Assemblyman Louis Manzo (D-Hudson) lost to Sandra Bolden Cunningham in his bid for Sen. Joseph Doria’s Senate seat. Cunningham, widow of Jersey City Mayor Glenn Cunningham, was endorsed by the Hudson County Democratic Organization.

The fractious primaries in Essex and Hudson counties left Democrats in need of “some healing,” said Assemblyman Joe Cryan (D-Union), the Democratic State Chairman. “I think we’ve got to heal as a party in particular areas. It reflects the fact that races are local.”

A dozen veteran senators decided not to seek re-election this year, creating unprecedented opportunities for Assembly members like Gregg and Manzo to ascend to the upper house. But taking that chance precluded them from running again for their Assembly seats.

That gamble paid off for Assemblyman Kevin O’Toole (R-Essex), who won the seat Sen. Henry McNamara (R-Bergen) is giving up after 22 years in the Legislature.

Sens. Nicholas Scutari (D-Union), Nicholas Sacco (D-Hudson), Assemblywoman Joan Quigley (D-Hudson) and Assemblyman Vincent Prieto (D-Hudson) gained easy victories over challengers with minimal budgets.

Assemblyman Peter Biondi (R-Somerset) and Somerset County Freeholder Denise Coyle prevailed in a three-way races to fill two Assembly seats.

Elsewhere, in the Republican primary in Middlesex County’s 18th District, Daniel Brown of East Brunswick defeated Andrew Tidd of Helmetta for the right to challenge Sen. Barbara Buono (D-Middlesex).

In the 9th Legislative District, Russell Corby won the Democratic Senate nomination in the heavily Republican district.

Assemblyman Brian Stack (D-Hudson) easily defeated fellow Assemblyman Silverio Vega (D-Hudson) in their battle to replace retiring Sen. Bernard Kenny. With 86 percent of the precincts reporting in the 33rd District, Stack, who is also mayor of Union City, had 77 percent of the vote.

Posted in Politics | 1 Comment

CT Home Sales Fall in April

Posted on June 6, 2007 by grim

From the New Haven Register:

Home sales down in market correction

The number of single-family homes sold statewide continued to slide in April, falling 3.5 percent compared with a year ago, The Warren Group reported Tuesday.

Statewide, 2,751 homes sold in April, down from 2,852 a year earlier. Homes grew slightly more expensive, however, with an April median price of $275,000, up nearly 2 percent from $269,900 a year ago.

The data marks an improvement over March, when sales fell almost 9 percent, and prices dropped about 3 percent from a year ago, but “we’re not out of the woods yet,” said Timothy Warren Jr., president of The Warren Group, a Boston-based firm that tracks residential real estate in New England. “We’re probably going to bounce around a bit for a few more months.”

Connecticut’s housing market has started an uneven correction after several years of double-digit price increases, Warren said.

“This is healthy, and I think we’ll start to see sales flatten out even more in the coming months.”

In New Haven County, 605 homes sold in April, one fewer than the 606 sold in April 2006. The median price slid 0.8 percent, from $250,000 a year ago to $248,000 in April.

“It’s a very spotty market,” said Barbara Pearce, president of North Haven-based H. Pearce Real Estate Co. “There are places where we’re getting multiple offers and there are places where things are sitting and sitting.”
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Connecticut fared better than neighboring states in April, and was the only one where prices increased, Warren said. Massachusetts prices and sales fell about 5 percent and 2 percent, respectively, and Rhode Island’s prices and sales slid 3 percent and 5 percent, respectively.

Current trends in Connecticut’s housing market likely will continue in the coming months, said Brendan Grady, senior vice president of Coldwell Banker Residential Brokerage.

Posted in National Real Estate | Comments Off on CT Home Sales Fall in April

Tighter standards = Fewer loans (go figure)

Posted on June 5, 2007 by grim

From Bloomberg:

Bernanke Says Tighter Lending Will `Restrain’ Housing Demand

Federal Reserve Chairman Ben S. Bernanke said tighter lending standards for mortgages will “restrain” housing demand for longer than policy makers anticipated.

The Fed chairman noted that the housing slump hasn’t spilled over into other parts of the economy and he maintained a forecast for “moderate” growth. Government and industry reports this month showed acceleration in job growth, manufacturing and personal spending and gains in business investment.

“The slowdown in residential construction now appears likely to remain a drag on economic growth for somewhat longer than previously expected,” Bernanke said in the text of remarks via satellite to a conference in Cape Town, South Africa. As subprime mortgage lenders make it tougher to get loans, that will “restrain housing demand, although the magnitude of these effects is difficult to quantify,” he said.

Fed officials have repeatedly cited housing as a threat to their forecast for faster growth this year. At the same time, they continue to view inflation as the biggest risk, keeping interest rates unchanged since last raising them a year ago. Economists and investors abandoned forecasts for a cut as signs of strength emerged in other parts of the economy.

“Although core inflation seems likely to moderate gradually over time, the risks to this forecast remain to the upside,” Bernanke said. Price increases remain “somewhat elevated,” he said to the International Monetary Conference today.

Minutes of the May 9 Fed meeting released last week noted that the housing recession would continue longer than officials had anticipated. By contrast, Fed officials in January they cited “tentative signs of stabilization” in home sales.
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Home building has fallen for six consecutive quarters, the worst slump since 1991. Residential investment also lopped almost a percentage point off of economic growth in the first quarter. Building permits in April fell to the lowest level in almost a decade, the Commerce Department reported last month.
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Bernanke said in his speech he’s open to imposing tougher regulation of lenders to prohibit “unfair” practices.

The Fed, which has authority to write rules for all lenders, is under pressure from Congress to further restrict predatory lending and toughen up standards. The Fed’s Board of Governors in Washington will hold a public hearing on mortgage rules next week.
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“Combating bad lending practices, including deliberate fraud or abuse, may require additional measures,” he said today. Still, the Fed must “walk a fine line” on regulation, Bernanke said, repeating remarks made in Chicago last month.

The Fed chief noted that he favors better disclosure and consumer education, and said regulators will continue to use supervisory guidance to remind lenders of standards.

“We have an obligation to prevent fraud and abusive lending,” he said. “We must tread carefully so as not to suppress responsible lending or eliminate refinancing opportunities for subprime borrowers.”

Posted in Economics, National Real Estate | 186 Comments

“Don’t kick us when we’re down. “

Posted on June 5, 2007 by grim

From Forbes:

Home Builders Hit The Hill

On Wednesday, 1,300 home builders will call on Capitol Hill as part of a legislative conference organized by their trade group, the National Association of Home Builders. They’ll do so against a grim industry backdrop.

“For the first summer in many summers, we’re not helping to keep unemployment numbers down,” says Jerry M. Howard, 51, the NAHB’s chief executive. “For the first time in six years, we are a drag on the economy rather than a plus.”

Publicly held home-building companies have weighed on the stock market too. Consider the table below, which lists the 10 biggest U.S. home builders by latest-12-month revenues. On average, the group shares have dropped 12% year-to-date, versus a 9% gain for the S&P 500.

Fittingly, Howard is sending his troops out to congressional offices with a simple, overarching message: Don’t kick us when we’re down.

“Our strategy is to remind policymakers of our importance in economic and societal terms,” he says, “and to convince them to take no action that would exacerbate this downturn in the housing industry.”

One area of potential exacerbation: immigration. The NAHB has come out strongly against the proposed immigration overhaul now being considered by the U.S. Senate, particularly its portions cracking down on employers that hire illegal workers, directly or through subcontractors.

NAHB’s opposition is a formidable one. The group serves as the national office for a network of state and local home-building organizations that in total serve 250,000 member companies and individuals. Howard, a Vermonter whose father was a home builder, says the NAHB, in all, speaks for a constituency of 8 million to 10 million people.

In Washington, the NAHB has an organization to match its membership roster. With a budget of $100 million, it employs 370. A third of those folks are dedicated to advocacy: lobbying, litigation, public affairs and regulatory analysis. Their overriding mission, says Howard, is to keep lawmakers conscious of how policy, even popular items like environmental or safety protections, can drive up the costs of housing.

Posted in National Real Estate, New Development | Comments Off on “Don’t kick us when we’re down. “

(Almost) Banning dual office holding

Posted on June 5, 2007 by grim

From the Cherry Hill Courier Post:

Corzine likely to sign ban on holding 2 offices

Gov. Jon S. Corzine said a proposed ban on dual officeholding that would carve out exceptions for politicians who already hold two or more elected posts does not go far enough for his tastes, but he is likely to sign the bill anyway because it is the best he can get right now.

“I’m not satisfied with what we’ve done, but I also believe in the practicality of, you’ve got to have the votes, you’ve got to be able to make progress,” Corzine said Monday during a 24-minute question-and-answer session with reporters.

“I know there’ll be be criticism of it, but I think I want to seize the moment to set in train a change in the fundamental way that we have allowed, I think, the system to develop real weaknesses in ethical patterns on the issue of dual office holding,” Corzine said.

After Corzine demanded a dual office holding ban, the Senate and Assembly agreed to pass a bill that would take effect in February, giving officials one last chance this November to win an additional office. The bill would also allow officials to move up from the Assembly to Senate while keeping a local post. Anyone who holds more than one position by February would keep all their jobs as long as they won re-election.

Republicans have said the ban should be immediate and cover everyone.

Corzine said dual office holders are not unethical, but added, “I think it is a very hard case to make that one job doesn’t influence the other.”

Posted in Politics | 3 Comments

Comparing real estate busts

Posted on June 4, 2007 by grim

Interesting graphic from the NY Times comparing the late 80’s/early 90’s real estate bust with the current cycle:

This gives us some perspective on how long the current downturn will take to play out. An oldie but goodie:

Home Prices Do Fall
A Look At The Collapse Of The 1980’s Real Estate Bubble Through The Eyes Of The New York Times

Posted in Housing Bubble, National Real Estate | 202 Comments

EnCap in jeopardy

Posted on June 4, 2007 by grim

From the Record:

EnCap project could be in trouble

The state Attorney General’s Office has declared EnCap Golf Holdings to be in default on two key provisions of its agreement with the Meadowlands Commission, according to documents obtained by The Record.

That conclusion has triggered a pair of 15-day “cure” deadlines, one expiring today and the other Wednesday.

If EnCap fails to cooperate, the entire first phase of the golf and housing project in Lyndhurst and Rutherford could be in jeopardy.

The dispute arose in the wake of The Record’s report last month that EnCap’s insurance company had denied $5.5 million in payments to contractors because of improper invoices, and that some contractors had not been paid for months.

In a series of letters dating to mid-March, Deputy Attorney General Valerie Haynes repeatedly warned EnCap that it was failing to abide by its deal with the state.

“The default date for posting of the post-closure security for this portion of Phase 1 is rapidly approaching,” Haynes wrote in a letter to Encap President William Gauger on March 19.

EnCap has until today to pay those post-closure costs for remediated land in Rutherford, and until Wednesday to submit a revised budget for cleanup costs that have swelled well beyond original estimates of about $120 million. The higher budget would force EnCap to put up millions more dollars in insurance premiums to ensure that the landfill cleanup is completed.

Posted in New Development, New Jersey Real Estate | 1 Comment

Weekend Open Discussion

Posted on June 3, 2007 by grim

This is the time and place to post observations about your local areas, comments on news stories or the New Jersey housing market, open house reports, etc. If you have any questions you wanted to ask earlier in the week but never posted them up, let’s have them. Also a good place to post suggestions, requests for information, criticism, and praise.

For readers that have never commented, there is a link at the top of each message that is typically labelled “[#] Comments“. Go ahead and give that a click, you might be missing out on a world of information you didn’t know about. While you are there, introduce yourselves to everyone.

For new readers that have only read the messages displayed on the main page, take a look through the archives, a substantial amount of information has been put online in the past year. The archives can be accessed by using the links found in the menus on the right hand side of the page.

Posted in General | 485 Comments

Kara buyers lose thousands

Posted on June 3, 2007 by grim

From the Home News Tribune:

Kara Homes slowly building up

Nearly eight months after East Brunswick-based Kara Homes Inc. filed for bankruptcy, many of the builder’s prospective customers, buyers such as Marlboro resident Elizabeth Yigdal, are still without their homes.

Yigdal and her husband, Jeffrey, put down $240,000 in early 2004 for a house at Kara at Crine West in Marlboro.

“We are watching and waiting,” Yigdal said. “I want closure on this. I either want my money, my house, closure, piece of mind.”

Now there are signs that Kara Homes’ bankruptcy case is about to take some major steps forward.

The company is poised to announce in court papers details of a settlement with Amboy National Bank, one of Kara’s major creditors. Kara also is getting ready to file changes to its controversial bankruptcy reorganization plan after extensive negotiations with creditors.

First, here’s a quick recap of what has happened so far.

Kara Homes, one of the largest home builders in Middlesex, Monmouth and Ocean counties, filed for Chapter 11 bankruptcy last October. It reported $227 million in liabilities and $350 million in assets.

The company said it ran out of cash and blamed a slowdown in the real estate market. It left Kara in tatters and about 300 prospective home buyers, some of whom had put down tens of thousands of dollars in deposit money, in limbo.

Kara also owes subcontractors and suppliers who worked on the company’s developments about $26 million as well. Most of the company’s debt, however, is owed to banks and other investors who put up the cash to purchase land to build homes.

After the company declared bankruptcy, its first priority was to raise some money to keep the lights on and pay employees. It laid off workers to cut down operations.

U.S. Bankruptcy Court Judge Michael B. Kaplan also allowed the company to hire corporate restructuring firm Traxi LLC and to put its managing partner, Perry Mandarino, in charge of the company’s daily operations as chief restructuring officer.

Kara attracted investment house Bear Stearns, which agreed to loan the company $5 million to keep its administrative operations going. In January, the company replaced the Bear Stearns loan with one from Plainfield Specialty Holdings II Inc., a hedge fund based in Greenwich, Conn.

Mandarino headed the company’s efforts to look at which developments to sell and which to finish.

In April, six developments — in Stafford, Little Egg Harbor, Monroe, Toms River and two in Edison — were sold for about $19 million. With the exception of some prospective home buyers in the Edison developments, customers lost tens of thousands of dollars in deposits and will have to recoup the money through the bankruptcy proceedings.

In a bankruptcy case, home buyers are considered unsecured creditors. They only receive money once secured lenders, such as banks, are paid.

Other developments, such as the uncompleted portion of Hidden Lakes at Lacey Township, which includes five partially completed homes with contracts, are going to be sold at auction as well.

Posted in Housing Bubble, New Development, New Jersey Real Estate | 4 Comments

April Pending Home Sales Drop

Posted on June 1, 2007 by grim

From Bloomberg:

Pending Home Resales in U.S. Fall to Four-Year Low

An index of pending sales of existing homes in the U.S. unexpectedly fell to the lowest level in more than four years in April, a further sign the real-estate slump may linger.

The index of signed purchase agreements, or pending home resales, fell 3.2 percent to 101.4, the lowest since February 2003, after a revised 4.5 percent decline in March, the National Association of Realtors said today in Washington. The index was down 10.2 percent from April 2006.

Rising mortgage defaults are putting more houses back on the market and prompting banks to tighten lending standards, making home purchases less affordable. Federal Reserve policy makers are forecasting that the glut of unsold homes will probably prolong the housing slump, already the deepest in a decade and a half.

“We’ve still got a very big overhang of home inventory,” said Nigel Gault, chief U.S. economist at Global Insight Inc. in Lexington, Massachusetts. “A housing recovery won’t happen this year.”

Economists had forecast pending home sales would rise 0.3 percent, from an originally reported 4.9 percent decline the prior month, according to the median of forecasts in a Bloomberg News survey. Estimates ranged from a 1 percent decline to a 2.5 percent gain.
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The Realtors group reported May 25 that sales of existing homes, which make up about 85 percent of residential sales, dropped 2.6 percent in April to the lowest level in almost four years.

“Psychological factors seem to be holding buyers back as they look for clear signs that the market has bottomed,” said Lawrence Yun, senior economist for the Realtors. “That varies from one area to another.”

Today’s report showed pending resales declined 10.4 percent in the Northeast and 10.2 percent in the West. They increased 2.3 percent in the Midwest and 0.7 percent in the South.

Posted in Economics, National Real Estate | 4 Comments

“Tenants told: Buy, or your rent will soar”

Posted on June 1, 2007 by grim

From the Jersey Journal:

DON’T BELIEVE IT

A number of residents of the Borinquen Houses, a Jersey City low-income housing complex, have received official-looking letters offering to sell them their homes before they’re made to face market rates for rent, and officials say the letter is a complete fraud.

“I have no idea whatsoever who is behind it, but it is an incredibly cruel thing to do to low-income people who are just trying to live in their homes, because it implies their homes will be sold,” Susan Mearns, head of Hudson County Division of Housing and Community Development, said yesterday.

The letterhead states it is from the “State of New Jersey Division of Housing and Community Development,” an agency that doesn’t exist.

The letter says management of the 300-unit complex is reviewing residents’ incomes to determine if they have the ability to buy their homes.

The letter provides some strange guidelines to let residents know if they’d be able to afford to buy their units: if they have a car newer than a 1995 model, make more than $10,000 per year per resident of the household, and have a body fat percentage greater than 10 percent.

The letter says one-bedroom units cost $300,000, two-bedroom units are $400,000, and three-bedroom homes are $510,000.

It states that the low-income residents who cannot buy their units would pay market-rate rent, as well as water and maintenance fees, real estate tax and school tax, “so everyone pays their fair share for lovely housing.”

Posted in New Jersey Real Estate | 6 Comments

Higher rates pressure housing market

Posted on June 1, 2007 by grim

From CNN/Money:

Mortgage rate rise pressures housing recovery

Mortgage rates went up again this past week, putting more pressure on a weak housing market and further dimming prospects for a quick recovery.

Low rates helped create and sustain the last housing boom. And rates remained manageable over the past two years as the market fell, buoying prices and enabling the bubble to deflate gradually rather than with a sharp pop.

But now, rates on a 30-year, fixed-rate mortgage, which have floated in a narrow range of 6.14 percent to 6.34 percent all year, have begun a steady rise. Doug Duncan, chief economist for the Mortgage Bankers Association (MBA), expects them to top out near 7 percent by the end of the year.

Rising rates, among other factors, have caused the MBA and the National Association of Realtors to push back their forecasts for a home-price recovery. Both groups are now looking to early 2008, compared with a previous outlook for mid-2007.
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When interest rates rise, they add to the size of a borrower’s monthly mortgage payment. Rates had been at 6.16 percent as recently as May 3. The 0.26 percent increase since then represents a jump of $30 a month on a $200,000 loan.

Buyers look carefully at monthly payments to gauge a home’s affordability. Higher monthly costs can limit the amount they can offer for a home.

And if rates do go as high as 7 percent, that could have a substantial impact on buying patterns, according to Keith Gumbinger of financial publisher HSH Associates, which tracks the mortgage industry.

“It would make it more likely that [buyers] would sit on the sidelines,” he said. “That would put downward pressure on housing prices.”

Posted in National Real Estate | 4 Comments

Housing downturn to “continue for longer than previously expected”

Posted on May 30, 2007 by grim

From Forbes:

Fed Expects Long Housing Slump

Gentle Ben is not the only central banker who is worried about housing. Based on the latest minutes of the policy-making Federal Open Market Committee, it seems that the entire panel thinks America’s real estate slump is going to persist for a while.

Minutes of the May 9 FOMC meeting, released Wednesday, encouraged investors to think that the central bank would not raise interest rates despite growing inflationary pressures in the U.S economy. Market sentiment has been shifting between predictions of a rate cut to bail out the housing sector and put some life into a flagging economy, and fears that inflation would force the central bankers to resume their campaign of interest rate increases, which was halted a year ago.
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Despite a weaker than expected housing market and a sluggish economy, officials remained focused on the “risk that inflation would fail to moderate as expected,” according to the minutes. “Future policy adjustments would depend on the evolution of the outlook for both inflation and economic growth, as implied by incoming information.”

The committee expects core inflation to dip over the next two years, but the members were not incredibly confident that it was locked in a downward trend. While core inflation readings were “favorable” in March, with core personal consumption expenditure (PCE) prices, excluding energy, remaining unchanged, it followed multiple months of high inflation. “Nearly all participants viewed core inflation as remaining uncomfortably high and stressed the importance of further moderation,” the minutes said.

With inflation worries fixed at center stage, it now seems highly unlikely that the FOMC will lower the federal funds rate from the current 5.25% this year, unless there is a major downturn in the economy — which the Fed does not anticipate.
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However, the economy’s rebound remains tied to the lumbering housing market. The subprime implosion has aggravated an already weak market by increasing the number of foreclosures, adding to a balloning inventory glut and prompting lenders to tighten credit standards.

“Recent readings on sales and inventories of new homes had been interpreted by the staff as suggesting that the ongoing contraction in residential investment would continue for longer than previously expected,” the minutes said.

Posted in Economics, Housing Bubble, National Real Estate | 466 Comments