Friday, May 27, 2011

Real Estate Commentary | PV Brokers Residential Real Estate Palos Verdes



Housing starts and building permits, which are leading indicators of the new home construction market, both came in below expectations that were already low. Broadly speaking, foreclosures and short sales are expected to continue to impact new home construction for the next couple of quarters but real estate conditions are very local – so your particular market may be quicker or slower to improve.

Manufacturing reports were also disappointing last week. For example, Industrial Production, Capacity Utilization and the Philadelphia Fed Manufacturing Index all came in below expectations.

So why didn’t bonds and home loan rates improve?

The recent rally in bonds and home loan rates was partly sparked by the notion that U.S. economic growth will slow – which the economic reports last week seemed to indicate. And when you also factor that the only two ways the government can lower the budget deficit is by cutting spending or raising taxes - or some mix of both - the austerity measures could indeed slow the economy.

Normally, such soft economic data would help bonds and home loan rates. But last week, bonds had trouble making gains because – despite the negative economic headlines – some of the reports included data that was unfriendly to bonds.

Here’s an example…

Last week, the Empire State Manufacturing Index reported weaker than expected. But, when you look beyond the headline number, you see that the “prices paid” component of that report – which measures wholesale inflation – showed the highest rate of inflation in three years and the second highest reading ever.

Additionally, the employment index of the Empire State Index was positive, which suggests hiring. And, in a separate report released last week, the Labor Department’s Initial Jobless Claims number also showed the lowest level of unemployment claims in a month. Not only was that a good number from the standpoint of beating expectations, but it also indicated that April's surge in unemployment claims was more likely due to temporary factors rather than a worsening labor market.

In the end, the positive employment news combined with the concerns over inflation offset some of the negative economic news last week and kept bonds and home loan rates relatively unchanged. Both mortgage backed securities and treasuries traded flat on a ceiling of resistance last week. And unless bonds can break above this ceiling, prices can't improve further.

As you can see in the chart below, last week was volatile – with mortgage bonds moving up and down before ending the week near unchanged.

Chart: Fannie Mae 4.0% Mortgage Bond (Friday, May 20, 2011)

Fannie Mae


Real Estate Markets Improving -- Toll Brothers Reports

One of the largest homebuilders in America reported quarterly earnings and indicated an uptick in the housing market.  As the negative feedback cycle continues with respect to real estate, Toll Brothers appeared very upbeat in their commentary. 

Other key metrics and guidance:

  • Toll expects to deliver 2,300 to 2,800 homes in fiscal 2011; the estimate is an increase at the low end from 2,200 to 2,300.
  • Toll ended the year with 203 selling communities, compared with 190 a year ago.
  • Backlog as of fiscal second quarter was $1.0 billion, or 1,706 units, up 1%.
  • The average delivered price in the next two quarters is expected to be $540,000 to $560,000, although TOL is seeing "flat to better pricing" in many markets.
  • Toll says it believes it is gaining share in the high-end market.
  • The balance sheet is still the best in the sector, with $1.5 billion in cash (up from $1.1 billion last quarter) and $1.5 billion in senior debt.
  • The press release did note that Gibraltar has acquired about $2 billion in principal value of loans and properties.


Overall, consumers continue to endure a negative media blitz magnified by continually bad housing numbers from Washington.  What consumers must realize is that these numbers are backward looking whereas Toll Brothers sees the future of housing in a brighter light.  Granted, Toll is a public company and, as such, is beholden to shareholders.  However, the Toll Brothers CEO has always been a straight shooter and was the first to publically admit the housing problem 2 years ago.  The fact that he has become somewhat bullish and plans land acquisitions and expansion in 2011 is certainly encouraging.

At PV Brokers, we continue to believe that once the negative media blitz subsides, we will have a restoration of confidence which will force many bottom feeding buyer to act on purchases.  Once this begins happening and modest growth is restored, there will be a mini-panic buying spree that will occur.  This will increase housing prices by 5-10% which will further scare sideline money (including Treasuries) into the real estate market.  We will see a flight to quality into more affluent communities while some of the more depressed areas of the market, including the 2nd home market, will remain stagnant.



  • Bart and Cathy Cleveland
  • Our Approach

At PV Brokers, our approach to Palos Verdes real estate sales and marketing begins with integrity and experience. These founding principles ensure that our clients receive ethical, personalized attention from our knowledgeable representatives. We strongly believe in long-term relationships with our clients resulting in a fair and enjoyable home buying experience. We understand the emotion and importance attached to the purchase of your new home. As such, we carefully listen to the needs of our clients and only then apply our expertise and experience to meet their expectations. At all times, we operate with the upmost integrity and professionalism, remembering that our practice is client-centered and client-driven. Simply, at PV Brokers, we listen.

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Monday, May 9, 2011

Palos Verdes Real Estate | PV Brokers Market Update

Newsletter-May 9th, 2011     

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Provided by


Bart Cleveland
DRE License #01858787
PV Brokers Residential Real Estate
955 Deep Valley Drive Suite #4495
Palos Verdes Estates, CA 90274
Phone: 310.872.0778
Fax: 310.697.3371


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Market Comment

Mortgage bond prices rose last week pushing mortgage interest rates lower. We were positive throughout most of the week as stocks struggled and oil prices fell. The ADP employment figure was lower than expected and weekly jobless claims were higher than expected which generally helped mortgage bonds. Unfortunately the payrolls component of the employment report Friday morning surprised to the upside and some of the earlier improvements were erased. Mortgage bonds ended the week better by about 1/4 of a discount point.

The inflation data will take center stage this week. Any surprises to the upside on the consumer or producer sides will likely put upward pressure on rates. Foreign demand for the auctions this week will also be important.



Date & Time



3-year Treasury Note Auction

Tuesday, May 10,
1:15 pm, et


Important. Notes will be auctioned. Strong demand may lead to lower mortgage rates.

Trade Data

Wednesday, May 11,
8:30 am, et

$45.5b deficit

Important. Affects the value of the dollar. A falling deficit may strengthen the dollar and lead to lower rates.

10-year Treasury Note Auction

Wednesday, May 11,
1:15 pm, et


Important. Notes will be auctioned. Strong demand may lead to lower mortgage rates.

Weekly Jobless Claims

Thursday, May 12,
8:30 am, et


Important. An indication of employment. Higher claims may result in lower rates.

Producer Price Index

Thursday, May 12,
8:30 am, et

Up 0.6%,
Core up 0.4%

Important. An indication of inflationary pressures at the producer level. Weaker figures may lead to lower rates.

Retail Sales

Thursday, May 12,
8:30 am, et

Up 0.3%

Important. A measure of consumer demand. A smaller than expected increase may lead to lower mortgage rates.

30-year Treasury Bond Auction

Thursday, May 12,
1:15 pm, et


Important. Bonds will be auctioned. Strong demand may lead to lower mortgage rates.

Consumer Price Index

Friday, May 13,
8:30 am, et

Up 0.6%,
Core up 0.2%

Important. A measure of inflation at the consumer level. Weaker figures may lead to lower rates.

U of Michigan Consumer Sentiment

Friday, May 13,
10:00 am, et


Important. An indication of consumers’ willingness to spend. Weakness may lead to lower mortgage rates.

Consumer Price Index

The Consumer Price Index is widely accepted as the most important measure of inflation. The CPI is a measure of prices at the consumer level for a fixed basket of goods and services. The National Statistics Office and the Bureau of Agricultural Statistics of the Department of Agriculture collect price data for the computation of the CPI. Since it is an index number, it compares the level of prices to a base period. By comparing the level of the index at two different points in time, analysts can determine how much prices have risen in that period. Unlike other measures of inflation, which only factor domestically produced goods; the CPI takes into account imported goods as well. This is important due to the ever-increasing reliance of the US economy upon imported goods. Analysts primarily focus on the core rate of the CPI which factors out the more volatile food and energy prices. Record debt levels continue to weigh heavily upon the financial markets. The Fed has tried to pump up the economy but in doing so has stoked inflation fears.

Copyright 2011. All Rights Reserved. Mortgage Market Information Services, Inc. The information contained herein is believed to be accurate, however no representation or warranties are written or implied.

New Housing Woes

More than 28 percent of U.S. homeowners owed more than their properties were worth in the first quarter as values fell the most since 2008, Zillow Inc. said today.

Homeowners with negative equity increased from 22 percent a year earlier as home prices slumped 8.2 percent over the past 12 months, the Seattle-based company said. About 27 percent of homes were “underwater” in the fourth quarter, according to Zillow, which runs a website with property-value estimates and real-estate listings.

Home prices fell 3 percent in the first quarter and will drop as much as 9 percent this year as foreclosures spread and unemployment remains high, Zillow Chief Economist Stan Humphries said. Prices won’t find a floor until 2012, he said.

“We get tired of telling such a grim story, but unfortunately this is the story that needs to be told,” Humphries said in a telephone interview. “Demand is still quite anemic due to unemployment and the fact that home values are still falling. And that tends to make people more cautious about buying.”

The U.S. unemployment rate rose to 9 percent in April, up from 8.8 percent in March, the Department of Labor reported May 6. Home prices have fallen almost 30 percent from their June 2006 peak, wiping out more than $10 trillion in equity, including $667.5 billion in the first quarter, Humphries said.

Dropping Home Values

Other analysts also expect homes to continue losing value this year. Oliver Chang of Morgan Stanley expects prices to fall as much as 11 percent, according to an April 25 report. Prices may fall “another 5 or 10 percent,” Robert Shiller, an economics professor at Yale University, said April 26 on Fox Business News. Home prices were 33 percent below the July 2006 peak in February, according to the S&P/Case-Shiller Composite 20-City Home Price Index, co-created by Shiller.

Prices will continue falling as more houses are lost to foreclosure, flooding the market with distressed properties, Humphries said.

Foreclosures fell to the lowest level in three years in the first quarter as lenders worked through a backlog of flawed paperwork, according to RealtyTrac Inc., an Irvine, California- based real estate information service. Foreclosure filings are likely to jump 20 percent this year, reaching a peak for the housing crisis, RealtyTrac predicted in January.

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Newsletter-May 9th, 2011