Hot and Cold in The Housing Market

0 Comments | Insight on the News, Sept 16, 2003

Byline: Jamie Dettmer, INSIGHT

Hot and Cold in The Housing Market

The good news is that increases in mortgage rates in July failed to slow the housing market and that sales of previously owned homes rose to a record in the month. Home resales totaled 6.12 million at an annual pace during the month, up 5 percent from June's 5.83 million rate and the third increase in the last four months.

But the not-so-good news is that there were anecdotal reports from realtors in August of the market going wobbly in parts of the country with housing prices reportedly sliding in some Southern and Midwestern states by about 10 percent. The National Association of Realtors acknowledges that July probably was a peak month and that sales are likely to slow between 4 and 5 percent later this year. In short, home buying, which spurs purchases of related items such as furniture and appliances, is unlikely to get stronger. David Lereah, the Washington-based group's chief economist, says he expects to see a slowing of price appreciation to the low single digits.

Previously owned homes account for 85 percent of the residential real-estate market and new homes the remainder.

Because of the highly active first half of the year, 2003 is likely to be the strongest ever recorded for the industry. But the rise in interest rates already has slowed the mortgage-refinancing sector. And the Federal Reserve can do little about it mortgage rates are pegged to long-term securities such as 10-year Treasury notes, whose yields have risen because investors fear higher inflation.

Getty and Germany

Apiece of unpleasant history: According to newly released British intelligence documents, Texas oil billionaire Jean Paul Getty was at the heart of a conspiracy to provide support to Adolf Hitler's Germany early in World War II. The documents, just declassified at the National Archives in London, link Getty to a shadowy network of financiers who supplied Nazi Germany with fuel in defiance of a British blockade. Getty's "Suspect Persons" file was prepared, according to The Observer of London, by the British Security Coordination team in New York run by William Stephenson, Winston Churchill's secret envoy to President Franklin Roosevelt.

The dossier was compiled after a banker who worked for Hermann G|ring was arrested in Trinidad in October 1941 for shifting Nazi funds out of Europe. It states: "Getty, controller of Mission Oil Corp., which holds German patents licensed by IG Farben and Standard Oil of New Jersey subsidiaries, returned from Europe in November 1939 talking breezily about his 'old friend' Hitler. Later he was said to have sold 1,000,000 barrels of oil to Germany for delivery via Russia."

Getty appeared to have a change of heart when the United States entered the war after the Japanese attack on Pearl Harbor. He volunteered, at the age of 49, for U.S. Navy service.

Is Alan Greenspan Being Shortchanged?

Alan Greenspan may be the world's most important and famous central banker, but he also is one of the poorest when it comes to his salary, being paid only 15 percent of the salary of the best-paid central banker, Joseph Yam of Hong Kong, who receives a colossal $1.12 million annual salary.

Central Banking magazine reports that Greenspan, who earns $172,000 per year, is way behind his European counterparts, many of whom basically are branch managers now that they have to toe the line set for them by the European Central Bank (ECB). The heads of the Finnish, Austrian, Irish and Dutch central banks all earn between $60,000 and $270,000 more than Greenspan.

And the Federale supremo is paid less than Dutchman Nout Wellink, the incoming ECB president, who will earn more than twice Greenspan's salary. The new Bank of England governor, Mervyn King, gets $411,160 almost 2.5 times more than his more important American counterpart.

Attempting to Track the Bull and the Bear

Is the three-year bear market over? Private investors are starting to return to the stock market after having kept well away from equities since the dot-com bubble burst. Toward the end of August, Wall Street hit a 14-month high and foreign stock markets did well, too, with London trading near its year peak and Japan rising to a year high.

There appear to be several factors in the bounce back, including the ending of full-scale military action in Iraq and the start of some economic reforms in France, where the government has cut pension commitments, and Germany, which enacted tax cuts.

Some analysts argue that the bull market is set for a long run. Morgan Stanley is optimistic, maintaining that the bull market initially was sparked by undervalued equities, then by increased corporate profitability and now is being pushed forward by investors moving money from the bond market.

But not everyone is so confident. HSBC equity strategist Patrik Schowitz, for one, claims the current bull market will be short-lived and represents a false dawn. "We don't think one can justify the present market levels. People are ignoring any bearish signs," he says. He points to the fragile situation in the Middle East as a cause for concern and the inability of companies to grow profits.