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Investing Specialists

Spying the Green Shoots--Page 2

We are seeing some signs that parts of the economy may be turning.

Housing Showing Some Improvements at Last
Housing was the key area to drive the economy into a recession, so we are watching housing metrics very closely, looking for any signs of improvement. Although the housing data remain mixed, we are relatively confident that things are on the mend. Housing statistics are volatile and hard to read. There are large seasonal factors, and they can be affected by weather. That said, inventory levels of unsold single-family homes as reported by the National Association of Realtors peaked last summer at 4.5 million units and subsequently declined in fits and starts to 3.7 million. This compares with a more typical inventory level of 2 million units. The Wall Street Journal recently reported inventories in key markets were down substantially from peak levels, with many markets reporting decreases of 20%-40%. We are also beginning to hear stories, especially from California, of bidding wars breaking out. A combination of record affordability (median house payments to median income) and an $8,000 first-time homebuyer tax credit are beginning to work their magic.

Our housing team, led by Eric Landry, is also optimistic that we may be nearing an end to the large price decreases in some markets. The team's analysis of data from Housingtracker.net suggests median listing prices (not actual selling prices) have begun to increase in many key markets. Early work suggests that these listing prices can lead the closely watched Case-Shiller pricing numbers by at least a couple of months. Also, the Federal Finance Housing Authority House Price Index showed small sequential increases in both January and February as did the National Association of Realtors Median Sale Price Index.

Financial Markets Turning
The financial markets are also beginning to show signs of life. In the first quarter of 2009, corporations raised more than $840 billion in the global bond market. That is more than double the issuance in the first quarter of 2008. Although much of this is investment-grade and government-guaranteed, it is still good to see corporations raising money outside the banking system. A number of the new issues were used to retire bank debt.