The Incline Village Real Estate market has been touched ever so little during these economic times.  There some things happening in the financial markets that might help or hurt our real estate market.  We are so lucky we have Lake Tahoe as our back drop to bolster our real estate values, after all, they are not making any more "Incline Villages or Lake Tahoes"..  Read on.  Tim Lampe

As written by Steve Peterson,

Though the economy seems to have its feet stuck in clay, there are developments that deserve close attention. Why, for example, has the price of gold risen so high, and is it likely to continue to rise? Why, simultaneously, is the euro gaining in value relative to the dollar?

You probably know the answers to these questions. Investors all over the globe are worried about the future strength of the dollar, saddled as it is with huge indebtedly--and the worries rise when the Fed says it may buy up Treasury securities to help stimulate the economy...and, possibly, lead to a weaker  dollar and higher inflation.

Though all seems relatively quiet in the economy, therefore, this may prove to be a very important turning point, possibly resulting in gradually rising interests rates, if the Fed has its way. (The Fed, it would seem, is seeking both higher inflation and low interest rates. At some point, those low interest rates won't be able to stand the upward pressure any longer; they will start to rise.)

I am not predicting higher rates just yet. They could remain near current levels for another year, in fact. But the Fed has the markets spooked, and gold is reacting strongly.

 

KEY INDICATORS

 

Gold $1332.00/ounce [up]

Crude Oil(Brent) $83.70/brl [up]

U.S. Dollar to…

    Euro .7312 [down]

    Japanese Yen 83.25 [down]

6-mo Treasury Bill Yield 0.17%

10-yr Treasury Note Yield 2.46%

[6-month down 2 bps, 10-yr down 1 bp]

11th Dist Cost of Funds 1.713%[-]

30-yr Fixed-rate Mortgage 4.70%

15-yr Fixed-rate Mortgage 4.18%

1-yr ARM 3.82%

[HSH averages rates: 30-yr

down 5 bps;15-yr down 4 bps; 1-yr ARM down 2 bps]

 

Mortgage Bankers Association Mortgage Applications Index

  Overall

    784.0 (down 0.8%; down 1.4%

the week prior)

  Purchase Money Loans

    181.8 (up 2.4%; down 3.3%

            the week prior)

  Refinancing Loans

    4288.3 (down 1.6%; down 0.9%

the week prior)

 

Jobless Claims 9/25

    453,000 – prior week 465,000 – continuing claims at 4.457 m

 

Construction Spending Aug

    Up 0.4% month-over-month – but 10% below Aug 2009 level

 

Institute of Supply Management (ISM) Manufacturing Index Sept

    Down from 56.3 to 54.4

 

Institute of Supply Management (ISM) Non-Mfg Index Sept

     Up from 51.5 to 53.2

 

Weekly Commentary

 

“Corporate profits grew in the second quarter, but at a slower pace than in the first quarter. The U.S. economy continues to expand, but the improvement is too weak to bring down the unemployment rate. Growth will remain soft into 2011.”[Augustine Faucher, Moody’s Analytics]

 

The economy isn’t stagnant—it is continuing to grow, though slowly and uncertainly. Still, it isn’t growing us into a vibrant, sustainable recovery. At present, in fact, it seems to be negating most of its strong moves forward. The manufacturing sector provides a good example: It was the star of the recovery earlier in the year, but has declined (according to the ISM Manufacturing Index) for four of the past five months. This is no way to run a recovery—as is shown by the likelihood that the GDP [Gross Domestic Product] growth for the current quarter is predicted to stumble in at roughly 1.9%, and possibly lower.

 

Still, we would be unwise to slip into a Rip-Van-Winkle nap, waiting for a big event to reawaken our attention. There is plenty of drama to occupy us, if we look closely for it.

 

The price of an ounce of gold, for example, rose above $1300 for the first time last Tuesday. (Note that we’re talking about the nominal price of gold, not the price as adjusted by inflation. The inflation-adjusted price is still well below the all-time record price for the metal, and that is somewhat important because it provides fodder for the argument that the current bull market may still have quite some way to go.)

 

At the same time, the value of the dollar relative to the euro has slipped noticeably—from $1.26 to the euro to $1.38, and still apparently rising.

 

These both represent fears within the international investment community that the dollar may lose more value in the future, especially if the Fed buys up large buckets of Treasury securities, keeping rates low, diminishing the strength of the dollar, and possibly even inviting a higher American inflation rate. The Fed has actually declared that the rate of inflation may be a bit too low, suggesting that a tad more inflation may help stimulate growth in our nation.

 

The Fed may be correct, though it’s difficult to place a lot of confidence in this theory. What is clear, as the markets have already shown, is that international investors aren’t keen on the idea.

 

And so—we watch the value of gold, the exchange value of the euro (and recent renewal of worry about the debt loads of European banks), and our own nation’s interest rates (which, like gold, are benefited by all the worry out there). The credit markets could turn, taking interest rates unexpectedly higher, thanks largely to the Fed. So much for our lengthy nap.