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

The U.S. economy is looking a little tired. It’s losing momentum in puzzling ways. Hiring is still strong, but experts are starting to scale back their growth forecasts.
Federal Reserve chair Janet Yellen summed it up well in a speech Friday: “If underlying conditions had truly returned to normal, the economy should be booming.”
Economists say there are two main problems: Workers’ wages aren’t growing much, if at all. As a result, Americans aren’t going out and spending much. On top of that, many foreign economies are slowing down, which puts pressure on the U.S.
The question going forward is whether we’re just in a blip or a bigger shift is taking place.
“The consumer really hasn’t kicked in at full speed ahead,” says Peter Cardillo, chief market economist at Rockwell Global Capital. “We’re going through a soft patch.”
With March’s jobs report out on Friday, this economic head-scratcher will be in full focus this week.
Related: Good news: Unemployment at lowest in 7 years
Still strong on jobs: The U.S. added over half a millions jobs in the first two months of this year alone. That’s a 50% increase from the same two-month stretch a year ago when the Polar Vortex had much of America in a funk.
Job gains have come across the board: health care, construction, the service sector and retail businesses have all seen strong pick up. The unemployment rate is down to 5.5%, its lowest mark in seven years.
It would be a full-steam story on jobs except for one thing: wage growth.
Hourly wages only grew 2% in February. That’s a marginal bump up, but it’s too little for most Americans to notice the recovery’s progress. It’s also well below the Federal Reserve’s roughly 3.5% goal.

SAN JOSE — The Silicon Valley economy may be booming, but its self-professed capital, the city of San Jose, is hardly paving the streets with gold. The home of eBay, Cisco and Adobe can’t keep libraries open full time, plug most potholes or staff a police force that can investigate many burglaries.

While much of the focus of San Jose’s dreary budget picture has centered on rising pension costs, a deeper problem remains: San Jose pulls in less money in taxes per resident than other big U.S. cities and even its suburban neighbors because it simply doesn’t have enough shops and businesses to support its sprawling population.

By Nike Rosenberg at Mercury News

As Fannie Mae sees it, 2015 will be a good year for the housing market, even if residential real estate has to get dragged into the black.
Fannie Mae’s 2015 Economic Outlook, released Thursday, is less a picture of a purely positive housing market than an expectation of an economy so strong across several key growth sectors that it will propel the national housing market to greater heights than in 2014. Or, as Fannie Mae puts it, the economy is strong enough to drag housing behind it and create growth by default.
“Our theme for the year, ‘Economy Drags Housing Upward,’ implies that both housing and the economy will pick up some speed in 2015, but that the economy will grow at a faster pace,” said Doug Duncan, chief economist at Fannie Mae.
Fannie Mae expects strengthening private domestic demand to drive the economy up 3.1 percent in 2015—up from the agency’s earlier prediction for 2.7 percent growth.
While that prediction is still modest, Fannie Mae says it’s strong enough to “drag last year’s unspectacular housing activity upward,” according to the report. Fannie Mae credits projections for continued low gasoline prices, firming labor market conditions, rising household net worth, improving consumer and business confidence, and reduced fiscal headwinds to usher in a year of steady, if “not yet robust” economic improvement that should lead to a higher rate of household formation in 2015.
“Consumer spending should continue to strengthen due in large part to lower gas prices, giving further support to auto sales and manufacturing,” Duncan said. “We believe this will motivate the Federal Reserve to begin measures to normalize monetary policy in the third quarter of this year, continuing at a cautiously steady pace into 2016 and 2017.”
Duncan also said he suspects mortgage interest rates to stay low throughout this period, attracting steady supply of new homebuyers.
Fannie Mae’s report echoes the sentiments of the National Association of Home Builders, which also this week spoke of bluer housing and economic skies ahead. Top economists and housing experts in a panel at the group’s International Builders’ Show in Las Vegas predicted a recovering labor market, low interest rates, and improvements in credit availability for borrowers as the three main triggers for growth in the housing market this year.
These assessments, however, are not shared by everyone, at least not blanketly. Earlier this month, Trulia’s chief economist Jed Kolko warned that falling oil process could have a recessive effect on housing in major oil-producing state such as Texas, Oklahoma, and Louisiana.
Kolko did say, however, that lower fuel prices could just as likely stimulate flagging industrial economies in the north and Midwest, where oil production is virtually nonexistent.
Regardless, Duncan and Fannie Mae foresee big things, even if this year will not be a breakout year for housing. “We expect the rising share of new home sales to lead to a healthy increase in single-family construction of about 19 percent, or 765,000 units,” he said.

Scott Morgan from DSNews

MOUNTAIN VIEW — Google has been on an astonishing real estate spree in the last several years, buying or leasing dozens of buildings across a wide swath of the South Bay.

What’s even more astonishing: It’s been adding new space even though it has not yet filled buildings it already has, giving the company the flexibility to expand its already large Bay Area workforce by nearly 30,000 more workers.

“I’ve never seen anything like this sort of expansion from any one company,” said Phil Mahoney, a broker with commercial realty firm Cornish & Carey.

George Avalos at (408) 859-5167

WASHINGTON (MarketWatch) — Sales of new homes in September rose slightly and hit a six-year high even though purchases earlier in the summer were not nearly as strong as initially reported.

The pace of new home sales edged up 0.2% last month to an annual rate of 467,000, compared to a revised 466,000 in August, the government said Friday.

New-home purchases for August were revised down sharply from an initial estimate of 504,000 and the Commerce Department also trimmed the sales figures for July and June. The report is notoriously volatile and often subject to sharp monthly revisions.

Still, new home sales in September were the highest since July 2008. And sales of new homes are 17% higher now compared to the same month in 2013, a sign that the housing market continues to get healthier. Home prices are rising at a slower pace and 30-year mortgage rates have fallen back below 4%, making houses somewhat more affordable.

“Despite the negative revisions, the new data doesn’t change the overall picture of a gradually improving housing market,” said Andrew Grantham, senior economist at CIBC World Markets.

By Jeffry Bartash @ MarketWatch

A decade ago, the Inn of Los Gatos — then known as the Los Gatos Motor Inn — was not a place you’d want to be seen checking in. Prostitution, drugs and general seediness were hallmarks of the motel on Los Gatos-Saratoga Road, right off Highway 17.

“The occupancy rate was 5 percent, maybe two rooms a night, and those weren’t the customers you wanted,” said Gavin McClements, general manager of the refurbished inn that now advertises itself with the catchphrase, “Affordable Luxury.” In 2006, McClements and his wife, Lilia, were hired by new owners who wanted the couple to help clean up the place. (Among the changes immediately made was requiring a credit card deposit, which quickly chased out the cash-only commerce.)

It’s been quite a turnaround for the former rundown motel, which originally opened in 1963 and underwent a nearly two-year renovation that was first approved by the town in 2008. It boasts 48 redecorated rooms that include touches like flat-screen TVs and ceiling fans. Enlarged reproductions of vintage postcards featuring Los Gatos line the lobby and its adjacent business conference room, something the old Motor Inn had no need for. A restaurant to be operated by Andrew Welch, owner of the Basin in Saratoga, is expected to open on the property next summer.

“It’s been a long process to get us to the point where we have something we’re really proud of,” McClements said.

By Sal Pizarro at Mercury News.

It’s the economy, stupid: Investors will have to wait until Friday for the main event of the week: the all-important July jobs report.
The key thing to watch is whether robust jobs growth is continuing into the second half of the year. In June, the government said 288,000 jobs were added, bringing the total number of jobs added in the first six months of 2014 to 1.4 million. That was the strongest six months for job growth since 2006.
Meanwhile, the unemployment rates stands at 6.1%, which isn’t far off from what many economists consider full employment.

But before the jobs report, Wall Street will get a first read on second quarter gross domestic product (GDP) Wednesday morning. GDP is the most comprehensive gauge of how the economy is doing, and a majority of GDP comes from consumer spending.

Analysts mostly believe that the first quarter’s 2.9% contraction was a blip due primarily to unusually harsh weather, but this week’s GDP report should provide more clarity on how the economy is faring.

Then there’s the Federal Reserve. The central bank will release a statement outlining its latest monetary policies on Wednesday afternoon.

It’s widely believed that the Fed will announce another $10 billion pullback in monthly bond purchases, but investors will be scrutinizing every word of the statement for clues as to when the Fed plans to raise interest rates.

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