One imagines the economy as a cantankerous, Dickensian banker--secretive, unwilling to let us know what is happening to our money, grumpy about the future. The current moment is very difficult to read, though there is a sense that the investors of the world still believe our economy is more likely to continue recovering than to slow significantly...though most are hedging that bet by taking on a larger investment in gold.

This will likely prove to be the Summer that Wasn't. Sort of like one of the Pacific Northwest summers that may be warm but are rarely actually sunny. The economy must hold itself together for the next few months. Most likely, as the end of the year approaches, we'll have better numbers and the real estate market will be improving. Companies are sitting on a great deal of cash and could hire, invest, rebuild at any time if they want to. But consumers are feeling weighted down by the slowness of the recovery; they are losing patience, it seems.

All of this could be greatly helped by a few laps in the pool or a bit of body-surfing in the ocean or a sail across the lake. We need to rebuild our stamina, especially our emotional stamina. And we need to make our clients and potential clients aware that we're unlikely to see a better opportunity to save money on our needed financing and refinancing in our lifetimes...far better, indeed, than we receive from an $8,000 or $6,500 tax credit! That's the big, under-reported news.

 

KEY INDICATORS [6/14/10]

 

Gold $1233.60/ounce [down]

Crude Oil (Brent) $76.75/brl [up]

U.S. Dollar to…

    Euro .8106 [down]

    Japanese Yen 91.50 [up]

6-mo Treasury Bill Yield 0.17%

10-yr Treasury Note Yield 3.32%

[6-month down 2 bps, 10-yr up 14 bps]

11th Dist Cost of Funds 1.825%[-]

30-yr Fixed-rate Mortgage 5.09%

15-yr Fixed-rate Mortgage 4.53%

1-yr ARM 4.68%

[HSH averages rates: 30-yr

down 6 bps;15-yr down 9 bps; 1-yr ARM up 45 bps]

 

Mortgage Bankers Association Mortgage Applications Index

week ending 6/4

  Overall

    560.9 (down 12.2%; up 0.9%

the week prior)

  Purchase Money Loans

    167.8 (down 5.7%; down 4.1%

            the week prior)

  Refinancing Loans

    2859.5 (down 14.3%; up 2.4%

the week prior)

 

Jobless Claims 6/5

    456,000 – prior week 453,000 – continuing claims at 4.462 m

 

Retail Sales May

    Down 1.2% overall – excluding autos, down 1.1% - excluding gas and autos, down 0.8% -

 

Weekly Commentary

 

“Consumers are moderating their spending.” [Scott Hoyt, Moody’s Economy.com]

 

Though the economy has been giving off signals that it is going to slow before it resumes its recent pace, the stock markets (as this is being written) are reflecting a more buoyant international mood. It is the sort of reaction to several days of gloom and worry over the debt problems in Europe that seems eventually to give way to a few days of confidence, perhaps brought on by a belief that, beaten down by excessive pessimism, stocks have reached a bargain-price range. Such a belief can, of course, pass very quickly.

 

More important, one suspects, is the fact that the Dow has managed to battle its way higher over the past week and appears thus far to be reaching yet higher. Last week’s total gain was 2.8%. Since there was little in the news that would convince investors to run out and buy shares of stock, it may be that the underlying confidence in the economic recovery is stronger than we’ve assumed it to be—taking the market indices higher without, for example, the stimulus of a strong economic indicator.

 

However, the continuing strength of gold counters such a view. On the proverbial other hand, the price of oil continues to edge higher, suggesting a general belief in an improving economy. Faster economic growth would presumably lead to greater consumption of oil.

 

The most worrisome indicators—at least, for those tracking real estate trends—are the mortgage application figures. Demand for new mortgages has already fallen more than 35% since the $8,000 and $6,500 tax credits effectively expired, and there is a clear tendency to fall further. In spite of continuing low interest rates, for example, the applications for new refinancing loans declined by 14.3% in the week ending June 4. It is difficult to imagine that the demand for refinancings has been satisfied. Instead, it simply appears that the real estate sector is stubbornly inactive, in a wait-and-see mode. Applications for purchase money loans, while off by a smaller 5.7%, also remain extremely weak.

 

Particularly confusing to this observer—as the federal government contemplates a further extension of the $8,000/$6,500 tax credit that would take the deadline for signed purchase contracts from April 30 to September 30—is the fact that homebuyers would gain a great deal more than $8,000 by financing a purchase (or refi) at today’s low rates, as against the likely level of rates in the not-too-distant future. That, indeed, is the amazing bargain that is receiving far too little attention today.