Now, I consider myself somewhat astute in the area of spicy meatballs, but must say, I was not quite prepared for the contortions of my esophagus and upper stomach module upon my first bite of chicken, laced with the hottest version of “The Man” sauce.  The experience was very humbling, and to this day my hands start to shake just a little when I think about it. 

Gene Porter and his wife “Dixie”, opened for business in 1994, in a very unique restaurant environment – inside a converted auto repair shop.  I remember my first visit to this location in ‘94 or ‘95, where I thought to myself “What are they thinking…this will never succeed!  Well, they proved me wrong and succeeded based on the incredibly good food, and Gene’s colorful personality.  Over the years they hosted a full range of clientele, from ordinary folk like me…to the rich and famous.

Unfortunately, Gene Porter, the founder of Dixies BBQ in Bellevue, died last Sunday of cancer at the age of 71.

For more commentary on what other patrons have to say about Dixie”s click: Yelp-Bellevue Dixie”s.  For location and contact information click: Porter’s Place.

Dixie’s is closed this week, but will remain in business, so quit procrastinatin’ and go get yourself a plate of smoking hot BBQ, and let me know how it goes.

Last week’s one housing report gave us the National Association of Realtors Pending Home Sales index, down 7.6% for January. But year over year, the NAR index is up 12.3%. Also, it’s now at 90.4 and a score of 100 equals the average level of contract activity for 2001, the base year, when activity was at a record high. So pending sales are still in pretty good territory.

Meanwhile, a quarterly report from a builders group and a major bank revealed that home prices are at near record levels of affordability. In the last three months of 2009, a family making the median income of $64,000 a year could afford to buy 70.8% of all homes sold during that time! According to this report, a home is affordable if a family making the metro area’s median income would have to spend no more than 28% of their take-home pay for housing. Of course, there are variations in affordability around the US, but this is a great overall trend.

Buyers, however, shouldn’t expect great affordability to last forever. According to a Freddie Mac index, in the last quarter of 2009 four out of nine regions showed home price gains! And the NAR’s monthly market forecast, out last Thursday, projected the median price of existing homes UP 2.8% for 2010 with the new home median price UP 2.0%. In addition, no one knows what will happen to mortgage rates once the Fed stops buying mortgage bonds at the end of this month. Smart buyers shouldn’t drag their feet, especially those wanting the tax credit, which requires a signed contract by April 30.

IN LIKE A LION… March came in and the markets roared, as the Dow clawed its way up to a 2.3% gain for the week that brought it to its highest level for the year. Investors were basically pleased with a slew of encouraging economic data that came in ahead of expectations, while credit market conditions continue to improve.

That’s not to say there weren’t a few disappointments, starting with the dip in pending home sales covered above. ISM Manufacturing for February also came in below estimates, at 56.5, but, hey, that’s still comfortably above the 50 level that signals expansion. On the other hand, ISM Services bested expectations, reporting a 53.0, its best reading since 2007.

Friday we had an employment report some experts feel shows an economy that’s poised to start adding jobs. Nonfarm payrolls were still down by 36,000 in February, but this was way better than expected. Even better than that, the unemployment rate held at 9.7%, avoiding an expected increase. And some observers feel the underlying data is pointing to job creation. We’ll see.

For the week, the Dow headed UP 2.3% to 10566.20; the S&P 500 hiked UP 3.1%%, to 1138.69; while the Nasdaq soared UP 3.9%, to 2326.35.

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New home sales fell 11.2% in January to a record low level. Existing home sales weren’t very pretty either, down 7.2%, though they’re UP 11.5% over a year ago. Let’s remember that last Fall we all thought the tax credit was going away at the end of November. Many sales got pushed into October and November, causing sales drops the next two months. But the median new home price is down just 2.4% year over year and the average price is now UP 3.7%. For an existing home, the median price is unchanged from a year ago and the average price is UP 2.6%. More evidence home prices are stabilizing, with some analysts expecting modest gains for the year. Supporting this, the Case-Shiller home price index was UP 0.3% in December, its seventh straight monthly rise. 

Even more interesting was the news that this has actually been a very good decade for home prices. From January 2000 to December 2009, prices were UP 46%, making residential real estate a clearly profitable investment. And that’s not even factoring in the mortgage interest and real estate tax deductions homeowners get!

Finally, we’ve reported that the Fed will stop buying mortgage bonds at the end of this month and experts feared rates may edge up. Now analysts say mortgage rates might not move much at all. This stems from the fairly calm market reaction to last week’s hike of the Fed’s discount lending rate (which is NOT the key Fed funds rate). Seeing little or no move in today’s low mortgage rates is good news for the near term.

MINOR SLIP… Another volatile week on Wall Street, as investors drove stock prices down two days, then up two days, with all three major indexes slipping just slightly for the week. Things got off to a weak economic start with Consumer Confidence dropping sharply in February, much like the temporary drop in January 1996 when, curiously, there was another big blizzard on the East Coast.  For the week, the Dow was down 0.7%, to 10325.26; the S&P 500 was down 0.4%, to 1104.49; while the Nasdaq skidded down 0.3%, to 2238.26.

Folks didn’t much like the drop in new home sales either, but good news did come with the Richmond Fed Index, which showed that manufacturing in the mid-Atlantic region went from -2 in January to +2 in February. Then there was Fed Chairman Ben Bernanke’s monetary policy report to Congress, which he serves up every six months. Bernanke assured everyone rates will remain low, a message loved by investors.

The up-and-down news continued with durable goods UP a solid 3.0% for January, showing business is investing in equipment, usually a precursor to their investing in jobs. Not just yet, though, as weekly unemployment claims edged up a tad. Then Friday we had the blockbuster news that real GDP for Q4 was revised UP to a 5.9% annual growth rate. People who still can’t see a recovery should also look at the Chicago PMI. This gauge of Midwest manufacturing hit a five-year high of 62.6 for February.

 Yale economist Robert Shiller states it bluntly: “If you look at the trend in rents to see where housing prices are headed, you’re looking at the right measure.” Shiller is the co-developer of the S&P Case/Shiller Home Price Indices that monthly track residential real estate values nationally and in 20 metro areas.

Traditionally, people have been willing to pay a modest premium to own a home rather than rent it. Recent studies report that in 1999 rents averaged 87% of the after-tax mortgage payment for houses and condos of similar size in the same neighborhood.

When home prices took off, this percentage changed. By mid-2006, rents had fallen to less than 60% of after-tax mortgage payments. In some markets, owners were paying twice as much as renters for a similar property in the same neighborhood. In a few places, owner monthly payments were three times average rents.

The 87% ratio of rent to ownership cost for 1999 is a good benchmark because it stayed around that level throughout the 1990’s and the steep rise in home prices hadn’t really begun.

With that as our guide, we can conclude that home prices at last appear to be stabilizing. By the end of October 2009, rents on average were up to 83% of ownership costs!

Conditions vary from market to market, so check your own area. But with historically low mortgage rates, plus the homebuyer tax credit, this could be a great time to be buying or selling…. Have a great month!

UP UP UP UP… YUP, stocks went UP four days in a row, which constituted all the trading days there were in the holiday-shortened week. Investors seemed to be responding to a cessation of fears coming out of Europe, encouraging economic data, good corporate earnings and the news from the Fed.  For the week, the Dow was UP 3.0%, to 10402.35; the S&P 500 was UP 3.1%, to 1109.17; while the Nasdaq climbed UP 2.8%, to 2243.87.

The minutes from the Fed’s January FOMC meeting stated economic conditions still warrant low interest rates, although their GDP growth estimate went from 3.0% to 3.2% for the year. Then Thursday, as reported in an Inside Lending Bulletin, the Fed raised its discount rate on emergency loans to banks by 0.25%, to 0.75%. The discount rate is not the Fed funds rate and the central bank said the increase does not “…signal any change in the outlook for the economy or for monetary policy….” Some analysts feel the Fed was just trying to appease inflation “hawks”. The irony was, the CPI inflation reading came in the next morning below consensus expectations, up a scant 0.2%!

Earlier in the week, the reading on wholesale inflation came in a little higher than expected, but this was balanced by the good news on housing starts, plus better-than-expected earnings from John Deere, Merck, Kraft, Hewlett-Packard and Wal-Mart. Equally encouraging, industrial production went UP 0.9% in January, putting it up at an 8.9% annual rate for the last six months. More evidence that manufacturing is at the heart of this recovery.

The existing home sales increase from Q3 to Q4 occurred in 48 states and D.C., with 32 of those states showing double-digit gains. Year-over-year, sales were higher in 49 states and D.C., up by double digits in all but 3 states. And distressed property made up just 32% of Q4 sales versus 37% of sales a year ago. The national median price of an existing single-family home, at $172,900, was down 4.1% year-over-year — but that was the smallest price decline in over two years. Even better, out of the 151 metropolitan statistical areas studied, 67 of them showed a RISE in the median home price.

ROCK ‘N ROLL… It was another raucous week in the stock markets, but this time the festivities ended with all three major averages headed UP!  There was not a lot of US economic news to stir things up, so investors instead fretted over Greece.  Stock prices went up and down with the news, but when all was said and done, Greece was promised the support of the European Union (EU), the International Monetary Fund (IMF), the European Central Bank and the European Commission. Sure sounds like enough help. We note there is no major US bank exposure in Greece. Investors also got shook about China tightening its credit situation, but, hey, they’re just trying to prevent their double-digit economic growth from getting out of hand.  For the week, the Dow was UP 0.9%, to 10099.14; the S&P 500 was also UP 0.9%, to 1075.51; while the Nasdaq surged UP 2.0%, to 2183.53. 

Wednesday saw the trade deficit for December come in at $40.2 billion, an increase of $3.8 billion over the prior month, but still $1.7 billion smaller than last year.  Exports are actually up eight months in a row, growing at a 27.1% annual rate. Total international trade — imports and exports –is up at a 31% annual rate since bottoming in April last year, and up at a 42% annual rate in the last three months.

The week ended on more good news. Retail sales were UP 0.5% in January (UP 0.8% including upward revisions to previous months). In the past six months retail sales are UP 7.9% at an annual rate and since September they’ve blasted UP 10.9%. Observers put this to personal incomes on the rise, a substantial reduction in consumer debt and the beginning signs of improvement in the job market. In line with this last point, initial unemployment claims fell to 440,000, with the four-week moving average now down to 469,000 — around 100,000 lower than six months ago. Continuing claims are now down to 4.538 million.

Median home price: $371,000

Value lost since 2006: 15.2%

Forecast gain by 2011*: 3.8%

Seattle has become a world-class city with a diverse, vibrant economy. As a home to manufacturers such as Boeing and software providers such as Microsoft, the job market has held up better than average, with a current unemployment rate of 8.8%.

Home prices had a softer landing as well, dropping just 15.2% over the past three years, about half the national average. However, prices do tend to be volatile, according to Mark Fleming, chief economist for First American CoreLogic. The lack of available land for development is one reason for that volatility, as are political restrictions on growth.

After another modest price decline of 2.3% in the next eight months, the market should begin to turn up. Between June 2010 and June 2011, the city should see a gain of 6.2%. Averaged out, that means a 3.8% gain over the next two years*.  

And while that may not sound all that robust for those jaded by the annual double-digit returns recorded during the boom, that performance will be one of the best of any large city during that period.

Lakeville Homes was founded in 1985 by Susan Ho.  At that time there were very few women in the construction industry, and a short time later Susan was the first female builder to participate in the Seattle Street of Dreams.  Now, with 23 years of experience building and remodeling fine homes, multiple awards for recent remodel projects and hundreds of happy clients, Lakeville Homes is ready to assist you with your project.  For more information on Lakeville Homes click here. 

The home being built on SE 25th St in Bellevue was having some of the utility connections installed today.  The house has a very attractive open floor plan with a triple car side load garage…..the perfect home design for the larger lot.  The home is priced at $775,000.00 and will feature all natural finishings with upscale amenities.  For more information, or to preview this home please contact me at 206-200-3325 or tom@thomaswolter.com.

The National Association of Realtors also released their adjusted overall outlook for this year and next. They estimate existing home sales will grow from 5.19 million in 2009 to 5.66 million in 2010 and 5.7 million in 2011.  They see new home sales growing from 375,000 in 2009 to 446,000 in 2010 and 637,000 in 2011. They believe prices have bottomed, projecting a 3.4% hike in the median price for existing homes to $179,800 this year and then a 4.3% rise to $187,500 in 2011.  New homes should go up 3.7% this year to a $221,300 median price and then 4.7% in 2011 to $231,700.

STILL NORTH OF 10,000… Last week, stocks took investors on a wild ride, but when all was said and done, the venerable Dow remained defiantly above 10,000. Investor concerns focused mostly on a “sovereign debt crisis” in Europe. Basically, Portugal had trouble selling its treasuries.  Then, Spain, whose 19% unemployment is way worse than any European country except Latvia, raised its deficit forecasts.  Finally, people questioned if the Greek government has the fiscal discipline necessary to pay back its loans. European markets tanked and Wall Street roller-coastered.  For the week, the Dow was off 0.5%, to 10012.23; the S&P 500 slipped 0.7%, to 1066.19; while the Nasdaq was down just 0.3%, to 2141.12.

Investors also aren’t completely sold on our own recovery.  The problem of course is jobs, the most lagging of all economic indicators.  Weekly initial jobless claims rose by 8,000, a bit worse than expected. Then Friday’s January employment report showed a loss of 20,000 jobs, when a 13,000 gain was expected. But hey, the unemployment rate fell to 9.7%!  Average hourly earnings were UP 0.2% for the month and UP 2.0% over last year. Also, total hours are up at a 1.8% annual rate in the last three months. This works out to about 200,000 jobs a month, showing there’s a growing demand for labor, which companies are meeting by increasing hours. Needless to say, they can’t keep that up indefinitely.

Now some really good news…..Personal income was UP 0.4% in December and personal consumption rose 0.2%. Over the past three months, real inflation-adjusted consumer spending is UP at a strong 3.6% annual rate.  Not surprising, given that in the last nine months, compensation per worker is UP at a 4.7% annual rate. In line with that, several retailers announced same store sales, with most beating estimates — some by substantial amounts! The ISM Manufacturing index hit 58.4, a five-year high, and ISM Services went to 50.5 in January, signaling expansion in the non-manufacturing sector too.