Weekly Commentary National Economic condtion that effects Incline Village Real Estate-April 15, 2011

 

Most of the indicators moved very little last week. This time last week, most analysts were predicting that interest rates would continue to climb into the foreseeable future, but the movement among rates over the course of the week proved very little.

 The 30-year average mortgage rate (compiled by HSH Assoc., which includes jumbo rates) was unchanged. The Freddie Mac average for the 30-year fixed rate was up only one basis point, having declined by that amount last week. And the rate that mortgages key off of, the 10-year Treasury security, only moved up 2 basis points.

 Far more interesting were the short-term rates. The 6-month T-bill has fallen to .1%, which is just this side of nothing as yields go. What the markets are demonstrating by this is a distaste for short-term securities; normally, that suggests we are in for a longer-than-expected time with unchanging rates. This runs somewhat counter to those—including the central banks of Britain and Europe—who are worried enough about rising inflation to have taken their interest rates higher. (The Fed continues to claim that inflation hasn’t yet become a problem worthy of our concern.)

Thus, we have something of an argument playing itself out in sovereign debt rates. Behind the European concerns about rising inflation is a particular distaste for inflation among the Germans, who can certainly still remember what it is like when inflation reaches astonishingly high levels.

But the debate is most interesting in what it may tell us about the future. We have perhaps been assuming that rates will continue to move higher for quite some time, and that the inflation rate would rise alongside interest rates. Many analysts look at the price of oil, gold, food and other commodities and find proof prices are rising all around us.

Nonetheless, these aren’t systemic changes in our economy. The price of oil could rise or fall very quickly—maybe tomorrow—as could most of the other prices that have been rising. Will they? Many are certain they will continue their upward path, but others argue—often convincingly—that the rate of inflation won’t continue rising that much higher in our nation unless and until wage costs start to rise, forcing the price of doing business higher. Wage prices currently remain dormant, of course. So some analysts, Bernanke among them, don’t yet see a reason to fear rising inflation. The recent rises don’t have the force of rising wage costs and falling unemployment.

We may, therefore, see interest rates near their current levels for some time to come, as prices for various goods move aggravatingly higher.

 KEY INDICATORS [4/15/11]

 Gold $1453.80/ounce [up]

Crude Oil (Brent) $121.34/brl

[down]

U.S. Dollar to…

    Euro .6914 [down]

    Japanese Yen 83.6743 [down]

    Chinese Yuan 6.537 [down]

    Canadian Dollar 0.9610 [down]

6-mo Treasury Bill Yield 0.10%

10-yr Treasury Note Yield 3.49%

[6-month down 4 bps, 10-yr up 2 bps]

11th Dist Cost of Funds 1.469%[-]

30-yr Fixed-rate Mortgage 5.17%

15-yr Fixed-rate Mortgage 4.44%

1-yr ARM 3.65%

[HSH average includes jumbo rates: 30-yr unchanged; 15-yr down 3 bps; 1-yr ARM down 1 bp]

Freddie Mac weekly average rate

            [4.87 - up 1 bp]

 

Mortgage Bankers Association Mortgage Applications Index

week ending 4/1

   Overall

    Down 2%; Down 7.5%

the week prior

   Purchase Money Loans

    Up 6.7%; Down 1.7%

            the week prior

  Refinancing Loans

    Down 6.2%; Down 10.2%

the week prior

 

Jobless Claims 4/2

    382,000 – prior week 388,000 (rev) – continuing claims 3.746 m

 

Consumer Credit Feb

    Up 3.75% overall – nonrevolving up 7.75% - revolving down 4%

Post provided by Steve Peterson and posted by Tim Lampe, real estate agent, Incline Village, Lake Tahoe, Nevada.