One of the most intriguing things I've encountered recently was a statement by John Paulson. (You may recall him because he made over a billion dollars betting against the real estate market as the credit crunch began to turn mortgage-backed security investments into endangered species. He went short in a BIG way.) But now: "If you don't own a home, buy one," Paulson said. "If you own one home, buy another one, and if you own two homes, buy a third and lend your relatives the money to buy a home."

This was reported by Chris Mayer, a trustworthy advisor who works for The Daily Reckoning, a journal which has treated real estate with undisguised sarcasm for several years. It is one of the first major warnings from a successful Contrarian. But does it mean the real estate market will make a big turn sometime soon. No one knows, though Paulson thinks so.

Worth watching, of course--and equally worth the pleasure of looking for signs that this bold prediction may turn out to be correct. Meantime, I guess the coffee break is over and we should all get back to work.

Posted by Tim Lampe and written by Steve Peterson

January 12, 2011

 KEY INDICATORS

 Gold $1378.50/ounce [down]

Crude Oil(Brent) $97.53/brl [up!]

U.S. Dollar to…

    Euro .7749 [up]

    Japanese Yen 81.95 [down]

6-mo Treasury Bill Yield 0.17%

10-yr Treasury Note Yield 3.36%

[6-month unchanged, 10-yr up 6 bps]

11th Dist Cost of Funds 1.571%[-]

30-yr Fixed-rate Mortgage 5.12%

15-yr Fixed-rate Mortgage 4.51%

1-yr ARM 3.78%

[HSH average includes jumbo rates: 30-yr down 7 bps; 15-yr down 5 bps; 1-yr ARM down 6 bps]

Freddie Mac weekly average rate

    4.77% [prior week: 4.86%]

 

Mortgage Bankers Association Mortgage Applications Index

week ending 12/31

  Overall

    Up 2.3%; down 3.9%

the week prior

  Purchase Money Loans

    Down 0.8%; up 3.1%

            the week prior

  Refinancing Loans

    Up 3.9%; down 7.2%

the week prior

 

Jobless Claims 1/1

    409,000 – prior week 391,000 – Continuing claims down 3500 to 4.103 million

 

Employment Report Dec

    Unemployment rate fell from 9.8% to 9.4% - 103,000 new payrolls (disappointingly weak)

 

 

Weekly Commentary

 

It will take a much wiser observer than I am to make sense of the current numbers. Last week, you may recall, October’s surprisingly strong 10%+ jump in the Pending Home Sales Index seemed to be confirmed by a 3.5% rise in the number of new home purchases in November. Confusion ensued.

 

It would seem that the results of such jumps should be obvious. If a substantially larger number of home purchase contracts were signed, a substantially larger number of purchase money mortgages should quickly be applied for, so that the purchases may be completed. And though purchase money loan applications were up by 3.1% in the middle of December—a rather weak improvement—they fell again at the end of the month by 0.8%. (You may have noticed that the publication of these data vacationed in the heart of the holidays, confusing the matter further.)

 

This confusing, to say the least.

 

Similarly confusing is the way jobless claims and the employment report were out of synch. Hopes were raised in mid-December when the number of people applying for unemployment insurance plunged 34,000 to 388,000. Hopes were not dashed—though they weren’t improved, either—when, the following week, the total new applications for unemployment insurance rose a bit to 391,000. But the first figure for 2011, which many of us hoped would stay below 400,000, rose to 409,000.

 

The employment report released last Friday, meanwhile, invited us to dine on stale leftovers. The expected feast was cancelled. Yes, the unemployment rate fell from 9.8% to 9.4%, but that reflected how many people had simply stopped looking for a job at all, rather than suggesting a lot of people were actually finding work. (According to the unemployment rate computation, those who have stopped looking for work have left the labor force and aren’t counted among the unemployed.)

 

And the 103,000 new jobs? Far too few. We need closer to 150,000 just to run in place on this treadmill, given how many new jobs are needed by people coming of age and immigrants seeking incomes. We really can’t start to speak of a jobs market recovery until we are generating at least 200,000 new jobs a month. Until then, we must speak of the “coming recovery”—and such talk has gotten old.

 

Perhaps these figures were skewed by the holiday season more than we know, or perhaps it’s the continuing tweaking of the economy by the Fed. Who knows? Perhaps we’ll soon see stronger figures. The Pending Homes Sales and Jobless Claims have been suggesting meaningful improvements. But the confusion continues.