Metro: Market Gains Momentum

Driven by bargain hunters and first-time buyers, the local market is feeling an uptick. Joel Jordan was pleasantly surprised when the house he fell in love with in Stillwater, dropped in price by nearly $30,000 and making it affordable. He had looked at about 40 houses, mostly foreclosures and fixer-uppers. Despite an almost daily dose of dim economic news, the Twin Cities metro area is gaining some momentum. Pending home sales rose 6.9 percent during October from a year ago. It was the fourth consecutive month of year-over-year increases. Closed home sales for the year are still almost 5 percent behind last year, but rose 12 percent in October. A growing share of those sales were distressed sales which help drive down the median sale price and those prices are now approaching levels not seen since the beginning of the decade.

Nation: Rise In First-Time Buyers, Long-Term Plans

The 2008 National Association of Realtors Profile of Home Buyers and Sellers shows first-time buyers have risen and they plan to own their homes longer than buyers in the past. Lawrence Yun, NAR chief economist, "First-time buyers are more flexible in entering the market because they aren't concerned about selling an existing home. Given low home prices, plentiful supply and affordable interest rates, it's been an optimal time for entry-level buyers with a long term view. The number if first-time buyers rose to 41 percent from 39 percent of transactions last year and 36 percent in 2006. The median age of first-time buyers was 30, down from 31 in '07 and the median income was $60,000. The typical first-time buyer purchased a home costing $165,000 and plans to stay in that home for 10 years, up from seven years in 2007.

Metro: Housing Researcher Finds A Ray Of Sunshine

spotted some encouraging signs in residential construction trends. Closed sales of newly built homes in the Twin Cities came in with a 23 percent decline compared wit the previous 12-month period. The silver lining? It's one of the mildest year-over-year declines recorded since 2005 says Jones. Jones also noted that the inventory of finished vacant homes on the market dropped by a third to 2,377, during the third quarter of 2008. Homebuilders have been trying to work through that supply because these spec homes exert a downward pressure on overall prices. These bits of relatively good news in the MetroStudy report to build on some other positive signs for homebuilders. For example, the U.S. Commerce Department reported that new home sales unexpectedly rose to 2.7 percent in September, although median sale prices dropped too. The Minneapolis Area Association of Realtors reported a 42 percent increase in pending sales for September. Despite the silver lining, there's no denying the clouds; the financial crisis, more restrictive credit policies, the psychological affects of falling prices and foreclosures.

Today’s Market Commentary. Slightly higher rates today.

Commentary: The mortgage market was bounced around a little this morning by the Bank of England’s stunning 150 basis-point cut in short-term rates, well in excess of the most aggressive forecasts calling for a cut of 50 basis-points. .Short-term interest rates in Britain are now at their lowest level in more than 50 years.

The sudden swoon in mortgage prices this morning suggest that mortgage investors are beginning to believe that the massive effort by the world’s central bankers will ultimately prove to be effective in jump starting the global economic engine. Rate cuts are viewed as leading to a greater demand for capital which in-turn ultimately leads to higher interest rates.

Closer to home the Labor Department said initial jobless claims for the week ended November 1st fell by 4,000 drew nothing more than a passing glance from mortgage investors. In a separate report the Department said third-quarter Productivity grew at a very anemic 1.1% pace while unit labor costs climbed 3.6%. While the unit labor costs increase is a bit disconcerting, most analysts see virtually no reason to fear a resurgence in wage driven inflation pressures.

The media channels are full of text and talk regarding the recession – and some even talking about an extended recession. As usual these “talking heads” fail to provide much perspective in terms of the time this economic condition might prevail. I think it is worth noting that since the Great Depression, there have been six major recessions; the recession of 1953, 1957, the 1973 oil crisis recession, the 1980 recession following the Iranian Revolution, the 1990’s recession and the early 2000 recession brought on by the collapse of the dot-com bubble. Three of these recessions lasted two years – and the other three lasted one year – start to finish.

If, as many suggest, the current recession began in mid-2007 -- we should reach the point at which economic activity begins to show a notable and sustained improvement somewhere between March and June of 2009. We personally find it hard to believe that $10 trillion in stimulus provided by the world’s central banks -- together with massive cuts in short-term interest rates -- will fail to have its intended effect of freeing the economic pendulum from the current recessionary mire. If our assumption is accurate, look for the economic pendulum to get a very healthy push in the direction of accelerating growth as the largest amount of cash and cash equivalents the world has ever seen that is presently sitting on the sidelines gets deployed.