5/14/2010

What a week in Incline Village Real Estate.  Very busy for this time of year, many showings.  What a week in our economy as well.  Read on..  Tim Lampe, Realtor.  Incline Village Nevada.

May we live in interesting times, indeed! Last week's peculiar market rout changed the economic landscape like a tsunami. The financial world sought cover in the likelihood that the 1,000+ plunge mid-day in the Dow Jones Industrial Average was the result of some arcane technological changes (mainly automatic sell programs) and not the result of the fermenting panic in Europe, but there can be little question that the panic created the conditions in which such a stupendous market plunge could occur.

The issues that continue to haunt me, however, are (1) how we expect the price tag for the bailout package agreed to this weekend to be paid, and (2) how we plan to restore credibility and certainty to investment markets in which things happen that make no sense. This latter problem, though few people are talking about it, will probably drag on and on. Perhaps new regulations and oversight will help. I don't know what it's going to take, but we're in trouble if it becomes the dead elephant in the stock exchange pits.

The good news, though, is that the real estate market is not only responding to the end of the homebuyer tax credit program with higher sales volume and more mortgage applications, but is also giving signs that it may hold its own in the short-term, if not for the time being. At the very least, we have reason to suspect that sales volume will continue to edge higher once the market gets used to the fact that the tax credit programs are indeed gone...but the low prices and attractive interest rates remain.

 

Conforming 30 year fixed rates for borrowers with excellent credit, 20% down (25% for condos) and who are buying an owner occupied home are currently 5% with no points (rates are subject to change until locked).

 

Jumbo 5/1 Arms for owner occupied homes with 25% down and loan amounts up to $850,000 are currently 4.125%  with no points (rates are subject to change until locked).

KEY INDICATORS [5/11/10]

 

Gold $1219.40/ounce [up]

Crude Oil (Brent) $80.48/brl [down]

U.S. Dollar to…

    Euro .7862 [up]

    Japanese Yen 92.88 [down]

6-mo Treasury Bill Yield 0.22%

10-yr Treasury Note Yield 3.55%

[6-month down 1 bp, 10-yr down 7 bps]

11th Dist Cost of Funds 1.859%[+]

30-yr Fixed-rate Mortgage 5.26%

15-yr Fixed-rate Mortgage 4.72%

1-yr ARM 4.88%

[HSH averages rates: 30-yr

down 6 bps;15-yr down 1 bp; 1-yr ARM up 10 bps]

 

Mortgage Bankers Association Mortgage Applications Index

week ending 4/30

  Overall

    556.2 (up 4%; down 2.9%

the week prior)

  Purchase Money Loans

    291.3 (up 13%; up 7.4%

            the week prior)

  Refinancing Loans

    2117.3 (down 2.1%; down 8.8%

the week prior)

 

Jobless Claims 5/1

    444,000 – prior week 448,000 – continuing claims at 4.594 m

 

Employment Report April

    290,000 new payroll jobs – unemployment rate up to 9.9%

 

Productivity first quarter 2010

    Up an annualized 3.6% - unit labor costs down 1.6%

 

Consumer Credit March

    Up 2% - revolving down 3.2%

 

Weekly Commentary

 

What exactly happened last week? The Dow Jones Industrial Average (DJIA) suddenly plunged by more than 1,000 points at about 2:45 P.M. before regaining a bit more than 500 points later that afternoon, and we’re still reading headline articles in The Wall Street Journal speculating on what could have caused this odd performance.

 

The main culprits so far identified—albeit tentatively—have been automatic selling programs in the stock markets and hedge funds betting on further declines a few moments after the plunge began, deepening it. Many analysts also identified a huge sale of Procter and Gamble shares as a proximate cause—not exactly a news-making stock.

 

True, the DJIA, as these words are written, has climbed back to the 10,800 level, 10-year Treasuries are happily ensconced at the 3.55% level, and the euro is holding at about $1.28. The rout, it seems, has ended, though the recovery from the Thursday-Friday plunge is incomplete.

 

It appears that investors all over the world are digesting the details of the agreement among European Union countries reached last weekend to make about $995+ billion in loan guarantees available to bail out euro countries on the edge of default. Greece is first in line, of course, but this package was also designed to calm fears that Portugal, Spain and even Italy might find themselves in still deeper trouble.

 

This is difficult stuff. It requires Greece to sign on to very strict austerity measures that many Greeks have respond to recently with violent street demonstrations. It means Germany must somehow sign on to the bailout while the population is generally against the move and elections need to be won. (West Germans, remembering how much it cost to bring East Germany back to viability after the communist regime fell, are not at all excited about paying for more bailouts.)

 

But there are two big issues that need somehow to be dealt with. First, the bailout will indeed keep Greece from defaulting and/or leaving the euro behind. It may even, for the moment, allow a semblance of stability in Europe. But these are astoundingly huge bills and the piper must eventually be paid. How? Does the bailout help the weakened countries regain their economic feet? If so, no one sees how yet—other than the possibility of good economic luck.

 

The uncertainties in this market are very difficult. We watch with concern—even as the real estate market and broader economy continue to show signs of sustainable recovery.