Incline Village Real Estate National Economic Commentary ~

June 9, 2011

The pattern is fairly clear. Investors return to a begrudging belief that the recovery in America is still progressing, though slowly. This belief is challenged by something like further doubts about Greece’s ability to avoid a default on its debts, which causes stock markets to stutter a bit and exchange rates to elevate the dollar briefly and credit markets to push interest rates a bit lower. Then we face another major economic indicator, hopeful that it will finally change the markets’ mood from dreary to positive…the recovery at last coming into view.

 

But, as with last Friday’s employment report, the news is mediocre at best, and most of us lower our heads and wonder just when this economic downturn will really pass. Sometimes it feels as if we’ll drop back into a slump, leaving recovery out of this cycle.

 

Many analysts, faced with the difficulty of explaining why the numbers aren’t improving more rapidly—why so few new jobs are created each month and GDP growth is so weak—declare we’re suffering from a general lack of belief in our nation’s ability to reduce the size of its deficit and debt. If the world were confident that we are taking aggressive measures to cut the debt, everyone would feel better about investing in American commerce, these analysts argue.

 

Okay, maybe. Others, though, declare that we haven’t provided enough stimulus, even though doing so elevates our nation’s debt. If everyone is trying to cut their debt—especially consumers—then that leaves no money with which to nurture a recovery, especially at the level of retail sales, and little reason for corporations to invest in new workers and equipment.

 

This seems as likely as the first explanation above. Perhaps they are both correct.

 

If they are both correct, the fact that the economy is having so much difficulty making sustainable forward steps is more easily understood, as is the fact that the value of the dollar is in such peril. Further, there seems to be little point in waiting breathlessly for the recovery to take firm hold. We could remain in this state—which is perhaps best termed “stagflation”—for a long time.

 

However, the real estate market continues to show reasons for hope, in spite of recent evidence that sales remain weak and values continue to decline. This past weekend, for example, The Wall Street Journal ran a feature—largely the work of veteran economics reporter Ruth Simon—which answered the question, “Should I buy a home today?” with a resounding, “YES.”

 

The fundamentals are there—low rates, attractive prices, buyer’s market. All we need is a realization among capable buyers that a better time to buy is unlikely to show up in our lifetimes. We’ve been waiting for that realization for a long time. It will come…probably as rates and prices begin to firm (in 2012 and 2013).

 

KEY INDICATORS
[06/07/11]

Gold
$1538.70/ounce [down slightly]

Crude Oil (Brent)
$115.54/brl [down]

U.S. Dollar to…
Euro   .6852 [down]
Japanese Yen   80.205 [down]
Chinese Yuan   6.4745 [down]
Canadian Dollar  .9754 [down slightly]

6-mo Treasury Bill Yield  0.10%

10-yr Treasury Note Yield  3.04%
6-month down 1 bp
10-yr down 2 bps

11th Dist Cost of Funds  1.359% [down]

HSH average mortgage rates including jumbo rates

30-yr Fixed-rate Mortgage  4.81%

15-yr Fixed-rate Mortgage  4.08%

1-yr ARM  3.51%  
30-yr down 7 bps 
15-yr down 6 bps 
1-yr ARM up 1 bp

Freddie Mac weekly average rate
4.55% [down 5 bps]

Mortgage Bankers Association

Mortgage Applications Index
week ending  5/27

Overall
Down 4%;
[Up 1.1% the week prior]

Purchase Money Loans
Unchanged;
[Up 1.5% the week prior]

Refinancing Loans
Down 5.7%;
[Up 0.9% the week prior]

Jobless Claims  5/28
422,000
[prior week 428,000 (rev)]
4-week moving average level
425,500

ISM Manufacturing Index May
Down from 60.4 to 53.5

Construction Spending April
Up 0.4% from prior month - March revised to 0.1% growth – 9.3% below this time last year

 

ISM Non-Mfg Index May

     Up from 52.8 to 54.6

 

Employment Report May

     54,000 new jobs added – 9.1% unemployment rate

 

COMING INDICATORS

Tuesday, June 14

    Producer Price Index    

    Monthly Retail Sales