March 13th, 2013 9:33 AM by Mel Samick
Go ahead and ring that opening bell all day and break out the champagne! Almost four years after the bear market low, the Dow Jones pierced through levels last seen in 2007 to close at a record high of 14,397. So far, the index is up nearly 10 percent in 2013, surpassing the 7.3 percent gain for all of 2012. All three major U.S. stock indexes had their biggest weekly gain since the first week of the year, with the S&P 500 on track for its ninth positive week out of the past 10. The S&P gained for its sixth straight day after a payroll report that was much stronger than expected last Friday. Hiring in the United States jumped in February with non-farm payrolls adding 236,000 last month, easily beating expectations. The unemployment rate fell to 7.7 percent, the lowest since December 2008. Private Job creation stood at a robust 246,000, finally indicating that the economy may be ready to escape the tight growth range in which it has held since the financial crisis. Service industries led the gains with 73,000 new jobs, while construction added 48,000 and health care provided 32,000. The big question will be whether or not this much job creation can be sustained in the midst of the budget cuts under the "sequester."
As a deadlock continues over automatic spending cuts in the United States, analysts told CNBC that the country is living in a "fantasy world." U.S. markets seemed to have shaken off worries over the $85 billion of automatic spending cuts known as the "sequester" that went into effect. The lack of investor concern in the U.S. was reflected by veteran investor Warren Buffett, who last week said that there was nothing to worry about. Who am I to go against Warren?
What does all this mean for the housing market? The slow and not so steady climb back from the Great Recession is nearing another milestone. The total net worth of U.S. households and non-profits is nearly back to 2007 levels, according to flow of funds data released by the Federal Reserve. A rebounding housing market and booming stock market helped household net worth climb $1.17 trillion over the fourth quarter of 2012. The increase brought total net worth for households and non-profits up 9 percent from the end of 2011 to nearly $66.1 trillion. That's the highest it's been since the end of 2007, when the net worth for those categories totaled $66.12 trillion. Given the continued gains in home prices and the stock market's record-setting rally to start the year, we may well have topped the all-time nominal peak of $67.41 trillion reached in the third quarter of 2007--remember those good old days? After lagging housing starts for several months, construction jobs surged in February to the highest level in six years. Builders are clearly acting on the big jump in new home orders. Housing starts are up 24 percent from a year ago. Additionally, sale prices of homes jumped nearly 10 percent in January, according to CoreLogic. Mortgage rates have inched up slightly. Mortgage buyer Freddie Mac said last Thursday that the average rate on the 30-year fixed mortgage edged up to 3.52 percent from 3.51 percent the previous week. The average rate on the 15-year fixed mortgage held at 2.76 percent.
While the markets rally, I pity the college graduate, burdened with shocking levels of student loan debt and looking for a job in the worst employment market in two decades. The staggering amount of outstanding student debt owed (nearly $1 trillion) is beginning to impede the U.S. economy as a whole, a new report from the New York Federal Reserve suggests, chiefly by robbing the housing market of its richest crop of new buyers: young college graduates. With the number of borrowers approaching 40 million nationally, including more than 40 percent of 25-year-olds, the average balance on their loans has risen to $25,000. About 6.7 million of all student borrowers, or 17 percent, are delinquent on their payments three months or more. The most precipitous drop was among those who owe $100,000 or more. New mortgages among these more deeply indebted borrowers have declined to 6 percent today down from about 16 percent in 2005. The implications for the housing market are serious. The number of first-time homebuyers, more than half of whom are aged 25 to 34, has been shrinking since the recession struck, and young buyers now make up their smallest share of the housing market in more than a decade.
In news outside the financial world:
· Hugo Chavez, Venezuela's divisive leader for the past 14 years and a vocal detractor of the United States, died of cancer last week at the age of 58. Hopefully his successor won't be such a divisive figure. Could you even imagine living in a place where half the country doesn't trust their own leader?
· Newly appointed peacemaker and former NBA player Dennis Rodman spent time with North Korean dictator Kim Jong-un. Even though this may seem bizarre to you, it's the most normal thing to transpire in North Korea in recent memory.
· Partially reversing rules that have been in place since the 9/11 attacks, the Transportation Security Administration announced that it would begin allowing passengers to bring pocketknives with blades shorter than 2.36 inches onto planes beginning on April 25. The catch is you're still not allowed to stab people with them. Some passengers are happy, as now they'll be able to chop up their strawberries.
Information provided by NYCB Capital Markets