Posted by Tim Lampe, your Incline Village Real Estate agent by choice.

Weekly National Economic Commentary Incline Village Nevada-April 7, 2011

 Construction spending fell by another 1.4% in February. This means very few new real estate properties are being built at the moment, which would seem to indicate that builders don’t see a significant improvement in sales any time soon. It also means that, once new home sales begin to take hold at last, the industry will have to play catch up in a big way. They will have precious little inventory to sell.

 

This could spark a surprisingly strong appreciation rate for newly-constructed homes. Those who buy today may not only find bargain prices and great financing, but also bigger future equity growth than was expected. For the moment, though, the new home market is very quiet, indeed.

 

The Institute for Supply Management (ISM) index, gauging the strength of new orders for manufactured goods, declined by a small amount in March, falling to 61.2 from 61.4. Remember that anything over 50 signifies growth, so manufacturing is still in decent shape.

 

The ISM Index for Non-Manufactured Goods, meanwhile, fell a bit more heavily—from 59.7 to 57.3—in March. Because it covers such a broad range of businesses in our economy, this index provides a decent glimpse at the general trend for the overall economy, indicating that it slowed a bit in March, but it is still growing. What we don’t know yet is whether the disaster in Japan has found its way into the numbers. Most likely—especially because production has slowed for lack of many Japanese products—the world economy, not just our own, will show a tendency to slow slightly in the near term.

 

And all of the above produces the background noise in an economy that is filled with fears about Japan’s nuclear disaster, Libya’s insurrection, and the fragility of certain European economies—notably, at the moment, that of Portugal.

 

And now, we must add to that list the repeated concerns about rising inflation around the world. As The Financial Times reported yesterday, “China on Tuesday raised interest rates for the fourth time in five months as the government struggles to reduce bank lending, rein in inflation and slow economic growth to a more sustainable pace.” France, meanwhile, is worried about its home prices, which have been rising at a 9% rate of late; banks are being advised to curtail lending somewhat. And the prices of commodities continue to rise, with gold still in record territory at about $1450.

 

The Fed continues to argue that inflation poses little danger here at this point. It is difficult to share that confident attitude, but impossible to gauge the future danger. But we may again see real estate as an effective hedge against inflation—and perhaps sooner than later.

 

April 6, 2011

 

KEY INDICATORS [4/5/11]

 

Gold $1450.90/ounce [up]

Crude Oil(Brent) $122.65/brl [up]

U.S. Dollar to…

    Euro .7027 [down]

    Japanese Yen 84.6145 [up]

    Chinese Yuan 6.545 [down]

    Canadian Dollar 0.9641 [down]

6-mo Treasury Bill Yield 0.14%

10-yr Treasury Note Yield 3.47%

[6-month down 2 bps, 10-yr down1 bp]

11th Dist Cost of Funds 1.469%[-]

30-yr Fixed-rate Mortgage 5.17%

15-yr Fixed-rate Mortgage 4.47%

1-yr ARM 3.66%

[HSH average includes jumbo rates: 30-yr up 6 bps; 15-yr up 7 bps; 1-yr ARM up 1 bp]

Freddie Mac weekly average rate

            [4.86 - up 5 bps]

 

Mortgage Bankers Association Mortgage Applications Index

week ending 3/25

   Overall

    Down 7.5%; Up 2.7%

the week prior

   Purchase Money Loans

    Down 1.7%; Up 2.7%

            the week prior

  Refinancing Loans

    Down 10.2%; Up 2.7%

the week prior

 

Jobless Claims 3/26

    388,000 – prior week 394,000 (rev)

 

Employment Report Feb

    216,000 new payroll jobs – unemployment rate falls 0.1 to 8.8%