Economic News as it can pertain to Incline Village Real Estate

The news--and, more particularly, the commentary on the news--seems to justify a great deal of negativity about our economy, not to mention the economy of the world. Further, the problems are complex, and it is easy to get confused when the problems are oversimplified, as often happens in the media. And the news coverage all too often makes unchanging economic circumstances seem new and dangerous because that sells newspapers.

The truth, though, is that we're experiencing a lot of sound and fury, all of it difficult to judge until after the dust settles. The good news is that interest rates are being pushed down by the intense worries about the economy. The bad news, of course, is that most people don't want to dive into the purchase of a home if the economy inspires so much uncertainty.

If you, too, are a confirmed Contrarian, all of that adds up to a splendid time to purchase a home or, better, a portfolio of rental homes. And by the time the Contrarians are proven right--which may be six months from now--most people will be kicking themselves for not buying a house in the midst of all this uncertainty. Such are the ironies of trying to be wise with our finances.

We do hope that your spirits are being warmed this summer and that your business is being brightened.

 

 

National Economic Commentary ~

July 16, 2011

The big news, of course, came at the end of last week when we realized how weak our employment data for June was. Analysts and politicians sought to explain the disappointing data, but we were left with split views on what the actual problems are and what needs to be done.

One limited view that makes sense: We are in the midst of what may prove to be a long period of deleveraging, in which it is particularly difficult for both individuals and institutions (including, notably, the government) to make much headway against accumulated debt. Virtually no one, after all, is able to stimulate the economy because we are all too busy saving, rather than spending, our money. So the economy, rather unsurprisingly, is stuck in the mud, and we’re all making less money from it—far less if we’re unemployed.

Few companies wish to boost their expenses by hiring new employees when they have no assurance that the demand for their products and services will grow or at least remain as strong as they have been recently. The good news in the midst of this confusion is that the economy continues to give signs of moving toward recovery (though the latest jobs data caused many analysts to suspect that we could possibly be moving back toward recession).

The size and quality of the optimism about the economy at any given moment keeps rising and falling as a result of conflicting ideas about the recovery’s strength, and interest rates also rise and fall with the level of optimism. Optimism two weeks ago led to higher rates (and you can see the results to the right). Worries about the economy since then have led to lower rates, since money gets easier to borrow when the recovery looks less certain.

Also weighing heavily on the mood of the markets are the jitters surrounding Greece’s possible sovereign default, and such concerns have been spreading to Portugal and Italy of late. The resulting weakness in the exchange rate of the euro is strengthening the exchange value of the dollar and, in turn, bringing Treasury rates lower—which should reverse the recent trend for mortgage rates, bringing them lower as well.

Recently, the number of applications for new refinancing loans was falling due to rising mortgage rates. But refinancings are rising again. Perhaps the number of applications for new purchase money mortgages will also rise as mortgage rates ease—but it is an anxious time, and that dissuades many potential homebuyers from making their move.

Meanwhile, here is an example of advancing recovery: The increase in the amount of revolving credit taken out in May is only the second increase since August 2008. (The financial meltdown occurred the following month.) A rise in apparent credit card use suggests growing strength in consumer purchases, and should probably leave us with the impression that the path toward recovery is still rather reliable, though slow. And that seeming small piece of good news, in the midst of poor jobs figures and European debt problems, may prove to be one of the most significant take-aways of this past week.