All about Life & Real Estate in Silicon Valley – Broker Michael Koo's Blog.

After accounting for mildly higher prices, consumer spending has actually fallen for two months in a row. In May, Americans cut back on eating out, going to the movies, and buying clothes. They spent less on necessities like groceries and utilities. Meanwhile, health care spending has fallen considerably since the beginning of the year, and has now been flat for two months in a row.
The few exceptions to these trends include spending on housing, gasoline and cars, which are rising.
“Consumers bought more homes and cars, saved a little more for a rainy day, and …that was about it. Not much left for anything else,” said Jennifer Lee, senior U.S. economist with BMO Capital Markets.

The Labor Department reported Friday morning that the U.S. added 288,000 jobs in April, sending the unemployment rate to its lowest point since September 2008, 6.3 percent. While some of the drop from March’s 6.7 percent unemployment rate was due to 300,000 long-term unemployed workers — those searching for a job for more than six months — giving up the hunt for a job, economists still cheered the labor market’s ability to bounce back after weak growth late in 2013.

Friday’s jobs report “lends significant legitimacy to the positive tone in the wide array of post-February economic reports, which have all been consistently pointing to a significant pickup in economic growth momentum this quarter,” Millan Mulraine, deputy chief economist at TD Securities, told Reuters.

The dire slowdown during the cold winter months was displayed by the federal government’s reading of gross domestic product in the first quarter, which came in at 0.1 percent in a report released earlier this week, much lower than the expected 1.1 percent and down sharply from 2.6 percent growth in the final quarter of 2013. With the first month of the second quarter showing such strong growth, the growth that disappeared in the first quarter could be roaring across the United States with more to come.

By Jeremy Owens at Mercurynews.com

The pent-up housing demand apparently saw its shadow and is still in hiding – existing home sales declined in March, the first real month of the spring buying season, even as prices continue to rise.

Sales of existing homes declined 0.2% in March to a seasonally adjusted annual rate of 4.59 million, the slowest it’s been since July 2012, according to the National Association of Realtors.

Affordability challenges and a declining inventory hampered sales, NAR says.

The median sales price of used homes hit $198,500 in March, up 7.9% from the year-earlier period. March’s inventory was 1.99 million existing homes for sale, a 5.2-month supply at the current sales pace.

The Federal Housing Finance Administration separately reported that U.S. house prices rose in February, with an increase of 0.6% on a seasonally adjusted basis from the previous month.

The FHFA’s measure is for February and considers different metrics and data sets than the NAR’s, which is for March. The FHFA HPI is calculated using home sales price information from mortgages either sold to or guaranteed by Fannie Mae and Freddie Mac. From February 2013 to February 2014, house prices were up 6.9%.

The 0.1% decrease in November 2013 ended a 21-month trend of price increases that had begun in February 2012. The previously reported 0.5% increase in January was revised downward to 0.4%.

“From a regional standpoint, sales were weak in the South and West, down 3.0% and 3.7%, respectively. Sales in the Midwest and North, on the other hand, were up 4.7% and 9.1%, respectively,” noted Sterne Agee chief economist Lindsey Piegza. “Bottom line, demand for housing remains uneven after months of heightened sales activity earlier in 2013. Now against the backdrop of minimal income growth and a still-tepid labor market, demand continues to wane.

“For potential homebuyers, rising prices are eroding affordability, putting further downward pressure on consumer’s ability and willingness to finance a home purchase. From the owner’s perspective however, rising prices are helping to create and maintain a wealth effect, fueling (or at least helping to support) consumer spending,” she said.

NAR chief economist Lawrence Yun said that current sales activity is underperforming by historical standards.

“There really should be stronger levels of home sales given our population growth,” he said. “In contrast, price growth is rising faster than historical norms because of inventory shortages.”

Trey Garrison at Housing Wire. www.housingwire.com

In February, 5.9% of all U.S. property sales were purchased by institutional investors (defined as an individuals or groups that have purchased at least 10 properties in a calendar year) down from 7.2% of sales the year before, according to data from real-estate data firm RealtyTrac. February was the third consecutive month the share of institutional investor purchases declined, after 19 consecutive months of year-over-year increases. Investors are cooling on markets like San Jose and Sacramento, Calif., Las Vegas and Phoenix, where prices have accelerated. “Supply and demand have reached a bit of a standoff in this uneven real estate recovery,” says Daren Blomquist, vice president at RealtyTrac.

So if institutional investors are backing out, should individuals as well? “Regular homebuyers are not likely to step in,” says Susan M. Wachter, professor of real estate and finance at The Wharton School at the University of Pennsylvania. The national median sales price of U.S. residential properties — including both distressed and non-distressed sales — was $164,667 in February, down 1% from the previous month, but still up 4% from February 2013.

By Q Fottrell at Marketwatch

The source of frustration is the sheer number of mainland visitors, which is expected to reach 45 million this year, and 70 million by 2017. Any city might struggle to accommodate these numbers, never mind a congested territory of 7 million.

Furthermore, it’s pretty clear the majority of these visitors are not here to see Hong Kong’s undersized Disneyland but are really traders seeking bargains, courtesy of an outdated exchange-rate regime.

To get a sense of the situation Hong Kong finds itself in, imagine if New York were to have a separate currency and tax regime from the rest of the United States. To replicate the Hong Kong situation, New York would have both significantly lower taxes and a currency pegged at a discount of 25% to the U.S. dollar.

In these circumstances, you might expect half of America to descend on the Big Apple for a shopping bonanza. New York residents would likely be none-too-pleased if they felt they were subsidizing those bargains to non-tax-paying day-trippers.

This is effectively what has happened in Hong Kong as it has accelerated the integration of people and infrastructure with its giant neighbor, while retaining a three decades-old currency peg to the greenback.

While China has re-pegged the yuan higher against the U.S. dollar as its economy has grown, Hong Kong has kept its peg unchanged. In the past six years or so, the rate has gone from 110 yuan for 100 Hong Kong dollars, down to about 78 yuan currently.

This situation means every day seems like a fire sale to mainland visitors who can arbitrage the currency divergence. Now, they are not just buying duty-free luxury goods, but also everyday essentials such as toiletries, which are also cheaper.

The gripe from Hong Kong is that this outsized demand creates shortages, pushes up prices and leads to transport congestion. Among the mainland visitors, about 60% are believed to be same-day visitors, according to Tourism Board estimates.

Craig Stephens @ Market Watch

U.S. mortgage rates fell, decreasing borrowing costs for homebuyers as investors weighed whether the economy is strong enough for the Federal Reserve to make more cuts to its stimulus.

The average rate for a 30-year fixed mortgage was 4.39 percent this week, down from 4.41 percent and the lowest since November, Freddie Mac (FMCC) said today. The average 15-year rate slipped to 3.44 percent from 3.45 percent, the McLean, Virginia-based mortgage-finance company said.

The Fed’s bond purchases have kept borrowing costs at historic lows, bolstering a housing recovery that has also benefited from job growth and a tight supply of properties for sale. While the unemployment rate fell to 6.7 percent in December, the U.S. gained the fewest jobs in two years, Labor Department figures showed on Jan. 10.

“The recent bits of economic news suggest that the economy is not accelerating,” Keith Gumbinger, vice president of HSH.com, a Riverdale, New Jersey-based mortgage-data firm, said in a telephone interview yesterday. “That does add doubt as to whether the Fed will be removing stimulus as quickly as expected just a few weeks ago.”

Fed policy makers have said they will gradually reduce the pace of bond buying as the economy strengthens. The committee meets next week after deciding in December to cut purchases by $10 billion a month.

Demand for home loans rose for a third week as the drop in rates spurred a pickup in refinancing. The Mortgage Bankers Association’s index of applications to reduce monthly payments advanced 9.9 percent last week, the Washington-based group said yesterday. The purchase gauge declined 3.6 percent from a seven-week high.

To contact the reporter on this story: Prashant Gopal in Boston at pgopal2@bloomberg.net

To contact the editor responsible for this story: Kara Wetzel at kwetzel@bloomberg.net

Average rates for fixed-rate mortgages have seen ups and down this year, and are closing out 2013 on the rise, according to data released Thursday.

The average rate for a 30-year fixed-rate mortgage hit 4.48% in the week that ended Dec. 26, up more than one percentage point from 3.34% at the beginning of the year, federally controlled mortgage buyer Freddie Mac FMCC reported. Meanwhile, the average rate for a 15-year fixed-rate mortgage rose to 3.52% from 2.64%.

Higher rates are behind some slowing in the housing market’s recovery, economists say, pointing to trends such as pending home sales falling in October for a fifth monthly slump. Such a decline makes sense given that rising rates lower affordability, cutting some demand.

However, fresh data signal that buyers may be adjusting to the pricier home-sales environment. And as long as jobs growth keeps up, home sales are expected to rise next year, even in the face of more expensive properties, new rules for loans and an evolving housing-finance environment.

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The Bay Area gained 13,100 jobs in October, state officials announced Friday, extending a pattern of strong growth throughout the year and keeping the region in the forefront of employment expansion in California.

Employment gains in the nine-county Bay Area last month accounted for one-third of the 38,900 jobs created statewide, this newspaper’s analysis of the numbers released by the state’s Employment Development Department show.

“The Bay Area is carrying the California recovery,” said Stephen Levy, director of the Palo Alto-based Center for Continuing Study of the California Economy. “Without the Bay Area, California would be lagging the nation’s job recovery.”

Contact George Avalos at 408-859-5167. Follow him at Twitter.com/georgeavalos.

Bay Area apartment rents slowed their march upward in the third quarter in a sign that the worst may be over in a region that has been slammed by two years of increases, according to a report Tuesday.

The average $2,006 a month asking price for all types of units was up 2.6 percent from the second quarter, considerably lower than the 5.2 percent jump earlier this year. The annual growth was 9.2 percent, according to RealFacts, which tracks apartment complexes of 50 units or more.

With occupancy rates dipping, RealFacts said, rent increase may continue to slow as landlords face more competition, particularly as more apartments are built.

Pete Carey at Mercury News.

Five Silicon Valley schools are among 15 in California that have been recognized as 2013 National Blue Ribbon Schools.

The winners and their school districts include Simonds Elementary in San Jose Unified, Faria Elementary in the Cupertino Union district, Chadbourne Elementary in Fremont Unified, Jensen Ranch Elementary in Castro Valley Unified and the private Valley Christian Junior High in San Jose.

The schools were honored for either high achievement or for making significant academic improvement. They were among 236 public and 50 private schools identified by U.S. Secretary of Education Arne Duncan.

The winners will be honored at a national awards ceremony Nov. 18 and 19 in Washington, D.C.

For information on the National Blue Ribbon Schools program, and for a list of the winners across the country, go to http://www2.ed.gov/programs/nclbbrs/2013/index.html.

— Sharon Noguchi, staff of Mercury News.