Friday, April 23, 2010

So as Starbucks goes goes the economy?

Is Starbuck's success an indicator for the economy? Bloomberg had an interesting article today suggesting just that (See Starbuck's Results Prove Recession's Over). From the piece by Dan Mitchell:
Traffic in Starbucks (SBUX) stores increased by 3 percent. And the average bill grew by 4 percent. More people are going to Starbucks, and, once there, they're spending more. This marks the first time that traffic has grown in more than three years—since before the recession began. The company's operating margins were the highest in its history, growing to 13.4 percent. Of course, that's thanks largely to massive store closings and layoffs during the recession. But it can't happen without top-line growth.

While I'm not convinced that coffee sales at Starbuck's necessarily indicate market recovery, there might be an aspect to higher sales of comfort items that does indicate healthier markets. After all, when the economy is bad, the $3-5 cup of coffee might be the first thing to go for tight-budgeting consumers. More of a luxury or discretionary item that returns when finances are better. The return of consumer spending on discretionary items seems like a good thing. No hard science here, but the idea makes sense.


Thursday, April 22, 2010

Tales of a Prospective Homebuyer

Today's news reported that the tax credit is helping boost the market for existing home sales (See Bloomberg, U.S. Economy: Tax Credit Helping). The market for existing homes was up 6.8% in March. The homebuyer incentive runs through the end of April and provides an $8000 credit for new home buyers and $6500 for some other homebuyers who meet income requirements. (See, IRS: First-Time Homebuyer Credit).

The housing market is struggling for many reasons that affect current home owners and buyers alike. We are in the market for a new home as I will be joining the faculty at St. Thomas University in Miami next school year. So, we are looking for a home in South Florida. Weston, Florida to be precise. While I don't own a home in my name, I am not eligible for the tax credit as my spouse owns a home in Boston that we now rent out. And the income requirements on the lower credit put that out of reach. But, I am not complaining about that here today. So, what is it like to purchase a home in this market?

After spending a week over spring break viewing homes and making offers on several, we haven't yet secured a home. Well, we don't really need one until August anyways, but shouldn't this be easy with a housing market in crisis? The good news is that existing home sales in Florida are also up 24% over March 2009. (See, Florida's Existing Home). But, homeowners are in crisis in South Florida, with projections that recovery will not hit there meaningfully until 2011. See, Bloomberg: Florida's Housing Market). Despite the increase in sales, prices are down 3% over last year. The number of foreclosures and short sales are high. Due to depressed prices, people who don't have to sell their homes are not entering the market.

So, what did we find? A low inventory of existing homes and not too much to look at. Many homeowners in South Florida seem to have either bought high and are under water or bought low but have taken out additional mortgages on their homes making them underwater. That all ends with even homeowners who are not in trouble with their banks having difficulty selling because they either need to find a buyer who will way overpay over market (not overly likely) or come to a home sale closing with lots of cash. We saw plenty of homes where the seller must ask an over-market price because their mortgages are high, they don't have cash to close and don't qualify for a short sale. Other home owners have cash to close but are bitter at having to spend it this way on a home that is worth much less than two years prior.

Add to all of this short sales and foreclosures. We went to see one shortsale home that was unapproved by the bank where as we walked through the home the agent told us of all the things the current owner was going to remove from the home (appliances, light fixtures . . .). Shortsales can also take months to close if they ever do. We also saw a foreclosed home where the prior owner trashed the home before leaving, taking fixtures, ac units and just doing general damage to the home probably costing $100k to fix. (See, Some Ex-Owners Trashing; Owners of Foreclosed Homes Steal Appliances). Challenges indeed as this is more than I am interested in tackling at this point in time.

I've purchased homes before and always found it a pretty easy process. Most people tend to act rationally and agreeing to a deal for a home after some negotiation. While I am sure we will secure a home before August, tackling South Florida's real estate challenges is not the same as prior home purchases. If the federal government does not extend the tax credit, we may see this little increase dissipate. There are also plenty of foreclosures still in the pipeline that will continue to depress prices and hamper the market for some time. Homebuyers can purchase, but the market is just not the same.


Tuesday, April 20, 2010

Obama Weekly Address on Financial Regulation

In case you missed Obama's address this past weekend on financial regulation, here it is:

No more taxpayer bailouts because a financial company is too big to fail was one of the key messages. Can this really happen? I am skeptical, but I guess we'll have to wait and see what the politicians agree to. Obama is correct in his assertion that something has to change in order to prevent the same crisis from reoccurring. Apparently, there will be much more coming on this issue in the near term.

Saturday, April 3, 2010

Federal Reserve Consumer Information on Overdrafts

With its new focus on being consumer-friendly, the Federal Reserve has published a circular on what consumers need to know about the new debit card overdraft rules. Remember, as of August 15th, banks cannot include customers in their overdraft services for ATM/Debit card transactions without their opting-in. The rules apply to new accounts opened beginning July 1. The Fed has even provided a copy of the standard form disclosure that it approved for banks to use, so that consumers can (hopefully) recognize the form when they get it in the mail (see Form). With an emphasis on consumer "choice" and education, it is good to see the Fed getting the word out.

Will consumers understand what this is all about? I suspect so. Just this last week, our 20 year old baby-sitter commented that she wished her bank, Chase, would follow Bank of America and give up on overdraft fees (See Hooray for Bank America). Apparently the word has gotten out positively for BOA. She'd been hit $35 on a debit card overdraft of less than $5. Expensive lesson, yes, but just one example where the new rules will help. Better to be denied at the counter, rather than get the hefty fee. I told her not to worry, the new rules are coming soon.