Stocks Are Loving 2013 – Local Real Estate Continues Higher

Cover 44USA Stock Markets Continue To Outperform

The excellent run in the USA stock markets that began on January 1st of this year continued this week as the S&P 500 gained 1.7% and closed within 15 points of it’s recent all time highs.

Leading the stock market higher were the more economically sensitive stocks which brought a relief to market participants.  Previously, the stocks that had been leading the market to it’s recent all-time highs were defensive ones in the Consumer Staples & Utilities sectors.  Usually defensive stocks do not lead a market to new highs so it was encouraging to market participants to see the technology,  transportation and industrial stocks have a strong week.

Investors have plenty to smile about so far in 2013 as the S&P 500 is now higher by 11% for the year.   Below is a chart of the S&P 500 that shows the gains for the past year.

 

(Click on Image of Chart for a Bigger Picture)

 

S&P 500

 

Locally, both Amazon & Starbucks reported earnings this week that were acceptable to the markets but their forward guidance was slightly weaker than what Wall Street had been expecting.  Both companies stocks sold off after earnings, especially Amazon by 7.2%.  Wall Street decided to again punish Amazon for making another large dollar amount of investments into their operating platforms that will cause Amazon to sacrifice some short term profitability – You would think with Amazon performance over the past 10 years that Wall Street would be a little more forgiving to the Company for taking the long-term view?

Moving briefly to Commodities – Gold after recently suffering it’s biggest correction since 1987 – gained 2.6% this week.  There were numerous reports in the press that Precious Metal Shops throughout the Far East & India sold out of all of their Gold Bullion as many people flocked to these metal dealers to take advantage of this record plunge in the price of gold over the past two weeks.

On the economic front, most of the reports showed a slight weakening over the month of March.  One exception was from the Initial Unemployment Claims report which came in at 339,000 – near it’s low for the past 5 years.

 

Real Estate & Housing Markets Continue to Strengthen – More Room Still on the Upside?

This week saw the release of the New Home Sales report which came in at 417,000 on an annual basis.  The 417,000 annual rate of new home sales was the highest total in over four years.

On an optimistic note for the economy – as good as the 417,000 new home sale was when compared with the past four years  – the 417,000 is still at historically weak level.  If the pace of New Home Sales continues to head higher towards  their  historical average levels of around 800,000 then the job market will get a needed boost as many thousands of jobs will be created over the next 3-4 years in constructing these new homes.  Additional jobs will also be created as each new home will require purchases of many types of interior products, appliances & furnishings.

Below is a 50 Year chart of New Home Sales.  As you can see from looking at this chart, New Home Sales around the levels of 417,000 have been the level of annual sales at the bottom of previous recessions for the past 50m years.

 

(Click on Image of Chart for a Bigger Picture)

Sale of New Family Homes

 

As long as the Federal Reserve can keep the interest rates low then the prospects for a an improving real estate markets continue to be bright.

Finally-  this chart of New Home Sales show just how far the housing markets collapsed beginning in 2007 and just h0w unusual the collapse in the housing market was.

 

Greater Seattle  – Tacoma Area Real Estate Prices Continue To Climb Higher

The story for the past few months in the local real estate market has been one of declining inventory available for sale.  This has resulted in home prices increasing across the greater King-Pierce -Snohomish counties.

To illustrate that real estate prices are starting to rise again, below is a 20 year chart of the Price Index for housing in the greater Seattle area.

 

(Click on Image of Chart for a Bigger Picture)

Seattle Home Prices

 

As you can see by the chart, homes in the greater Seattle area reached their peak in 2007.  Then the Financial Crises hit and caused a record amount of foreclosures which flooded the market with supply and was the primary factor in the drop in home values.

Housing prices in the greater Seattle area fell around 30% from their peak and settled at levels that they sold for in the year 2004.

The chart also clearly illustrates that prices for homes fell for almost five years before home prices reached their bottom in early 2012.   Since then home prices have been on a slow climb upward.

With interest rates at 50 year lows and a continuing improving job market, real estate prices should continue to increase at a moderate rate.  I imaging that if home prices increase somewhere between 5% – 10% higher from here, a significant amount of homes would come on the market as previously under-water homes would now reach levels where homeowners could sell without taking a loss.   This would put a cap on a continued increases in home prices for a period of time.

 

Closing Thoughts

With April coming to a close the Stock Markets are entering the historically much weaker May – October months.  The pattern for the past 3 years has seen a strong start to the year followed by a sell-off during the late spring-summer months followed by a year end rally.  So far 2013 has mimic this pattern.

Right now bullish sentiment is at low levels – this is contrary to what would be expected with stocks within a whisper of all time highs.  This lack of enthusiasm suggests that equity markets have room to move higher.  Also, the lack of enthusiasm as markets are near all time highs show that for many people confidence in the stock markets is just not there.

At this time the better long term investment opportunities seem to be in the emerging market economies who are trading at significant discounts from their highs of the past three years.

 

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