It's been a pretty quiet week on the national economy. The most notable national econimic event, perhaps, has been a slow slide among interest rates as we move into the old pattern of concern about the economy slowing vs. concern about the economy improving. The former gives us lower rates; the latter gives us higher rates. But the movements of late have not been significant.

All told, it is one of those times that bring to mind a becalmed sailboat. So we wait for further movements that will predict the later direction of interest rates, stock market indices, and other indicators. The sense is that, whenever the economy seems to be moving up or down for a time, it can't sustain the move. If, as recently, interest rates seem to be rising, it is as if they are made up of wet kindling and the fire just can't get going.

Time to reflect on how we plan to face the likelihood of increased business volume as we get into 2011. Time to realize we can't push the river.

Remember to read all the national Real Estate Market commentary at the bottom of this blog.

BTW, were into great weather for Lake Tahoe this weekend, so don't put the boat away so quick.  Tim Lampe

 

KEY INDICATORS [9/21/10]

 

Gold $1276.80/ounce [up]

Crude Oil (Brent) $79.39/brl [up]

U.S. Dollar to…

    Euro .7641 [down]

    Japanese Yen 85.32 [up]

6-mo Treasury Bill Yield 0.19%

10-yr Treasury Note Yield 2.59%

[6-month up 1 bp, 10-yr down 16 bps]

11th Dist Cost of Funds 1.753%[-]

30-yr Fixed-rate Mortgage 4.75%

15-yr Fixed-rate Mortgage 4.21%

1-yr ARM 3.81%

[HSH averages rates: 30-yr

down 3 bps;15-yr down 6 bps; 1-yr ARM down 7 bps]

 

Mortgage Bankers Association Mortgage Applications Index

week ending 9/10

  Overall

    801.5 (down 8.9%; down 1.5%

the week prior)

  Purchase Money Loans

    183.7 (down 0.4%; up 6.3%

            the week prior)

  Refinancing Loans

    4396.1 (down 10.8%; down 3.1%

the week prior)

 

Jobless Claims 9/11

    450,000 – prior week 451,000 – continuing claims at 4.485 m

 

Producer Price Index (PPI) Aug

    Up 0.4% - core level, excluding food and energy, up only 0.1%

 

Consumer Price Index (CPI) Aug

    Up 0.3% - core unchanged

 

Weekly Commentary

 

“The national recovery is consistently underperforming, relative to initial expectations, and job and income growth—the key driver of housing demand—remains extremely tepid. Any minor progress stemming from job growth over the next six months will be offset by a resumption in house price declines over the same period. It will take until 2011, when the national recovery begins to pick up steam, for housing gains to accelerate.” [Michael Zoller, Moody’s Analytics, formerly Moody’s Economy.com]

 

In today’s slow and weak economy, concerns about inflation rising in the foreseeable future have all but disappeared. Both the so-called “headline” Consumer Price Index (the rate of overall inflation) and the “core” level (with volatile food and energy prices removed) now remain at a low 1% annualized rate.

 

As Michael Zoller forecasts above, though, the economy will improve but it won’t gain meaningful speed for many months to come. We have to slog through the negative effects of more REOs being placed on the market by their owners, the banks. And banks are likely to slice the asking prices of REOs, wanting to get them off their books.

 

Significantly, Zoller notes that bank filings to repossess properties—that is, REO filings—have risen by 25% over the course of this year and now stand at an all-time high.

 

The good news, though, is that notices of default are moving in the opposite direction, and have fallen by more than 30%. Default notices precede REO filings, and this suggests we may see REO filings slow as 2010 closes. As they slow, prices should begin their long march higher.

 

Other good news: the pace of new construction in August climbed by about 10.5% from July’s pace. This still leaves us with a slow rate of new housing completions but, like the 0.4% decline in purchase money loan applications, we are seeing the effects of the termination of recent tax credit programs fade and the real estate market turn (rather like an ocean liner) toward recovery.

 

Further, the effect of greater numbers of REOs for sale will vary from market to market, leaving many localized real estate markets far more active, and with firmer prices, than others. We have noticed before that many markets are experiencing far better sales volumes than others. No surprise: That will continue.

 

Some market analysts, though, are likely to be surprised when we wake up one day to notice that foreclosure problems have lost their fading hold on our markets, and that a sustainable recovery therefore has spread itself more evenly across the entire nation. When? Perhaps at some point in the first six months of 2011. No guarantees, but it looks more and more likely.