Sunday, March 18, 2012

The Week Ahead: Real Estate

This is housing week on the econ beat, with reports on real-estate markets every day.

Given the challenges faced by housing, these reports may pour cold water on the warm and fuzzy good news coming from the job markets of late.

Let's begin with the Big Three reports: Housing starts at 8:30 a.m. Eastern on Tuesday, existing home sales at 10 a.m. on Wednesday, and new home sales at 10 a.m. on Friday.

Given the glut of housing inventory held over from the real-estate crash and ensuing recession, I consider existing home sales to be the most interesting of the three. Until that inventory moves, there is little incentive for home building to pick up again. 

Besides, existing homes are by far the bigger share of the market.

Second most interesting is the housing starts report, which tracks the extent to which home builders are starting construction. If housing starts are up, then homebuilders are convinced that the market is ready for new inventory, and they are willing to hire the workers and buy the materials to make it happen.

Finally, new home sales, a smaller slice of the market than existing homes and the end of the process through which the real-estate supply expands. At best, it confirms that homebuilders were right in their past market assessments that led to the homes being built.

I find new home sales to be a fairly uninteresting report, although that opinion isn't universally held.

A less significant but also fascinating report is the housing market index, out Monday at 10 a.m. This tracks real-estate markets in 20 metro areas. Since real estate is the most local of markets -- a boom in metro Washington, D.C. doesn't necessarily translate into a boom in Las Vegas -- this report gives added depth and texture to the national numbers.

And finally, little noted and not long remembered, the Federal Housing Finance Agency's house price index, at 10 a.m. Thursday. The FHFA index's fatal flaw as a general indicator is that it tracks only a portion of the market: Mortgages handled by Fannie Mae and Freddie Mac. That's a huge chunk of the market, to be sure, but it's an incomplete view of the landscape.

Real estate aside, I'm interested in only one other report during the week: Leading indicators, out Thursday at 10 a.m. It is a fairly good predictor of future prospects: If it is rising, then the economy will be growing; if falling, then not.

The Fedsters will be out on the speaking circuit in full force during the week, led by Fed Chairman 
Ben Bernanke, who at 12:45 p.m. Tuesday delivers the first of four lectures at the George Washington University School of Business. (The other lectures are scheduled for March 22, 27 and 29.)

If Bernanke runs true to form, I would expect him to commit theorizing rather than news. But I listen to anything he says on any subject with the deep fascination reserved for those who wield immense power.

Two of the Gang of Three inflation hawks on the Federal Open Market Committee will speak: Dallas Fed President Richard Fisher on Monday at 7:30 a.m. and Minneapolis Fed President Naryana Kocherlakota on Tuesday at 5:30 p.m.

The Gang of Three -- Philadelphia Fed President Charles Plosser is the third -- dissented during the summer of 2011 in votes on expanding the money supply to encourage economic growth.

Fisher in his pre-Fed career had institutional ties to former Secretary of State Henry Kissinger’s strategic advisory firm, the private bank Brown Brothers Harriman Inc., and his own money management firm.

Kocherlakota came to the Fed from academia.

Also speaking, New York Fed Pres. William Dudley on Monday, and Atlanta Fed Pres. Dennis Lockhart at 2:30 p.m. and St. Louis Fed Pres. James Bullard at 9 p.m. on Friday

As head of the New York bank, Dudley is the most powerful of the Fed bank presidents. He sits on the Federal Open Market Committee. Dudley's resume shows institutional ties to Goldman Sachs and the Congressional Budget Office under Presidents Bill Clinton and George W. Bush.

Lockhart, an alternate member of the FOMC, had institutional ties to Citigroup (then called Citicorp/Citibank), Heller Financial and the private equity firm Zephyr Management L.P. before assuming his current position.

Bullard, who doesn’t have a seat on the monetary policy committee this term, rose through the Federal Reserve system.

Kocherlakota and Dudley assumed took office under President Obama; Fisher, Lockhart and Bullard under President George W. Bush.

By my rules, as of Monday I can trade April diagonal, butterfly, calendar and vertical spreads, iron condors and covered calls, and June single options and straddles. Of course, shares are good at any time.

Good trading!

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