Inflation?

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Reading the Wells Fargo Securities report for February 5th, I quote; “For us, the trends are clear.  Economic growth will continue, inflation will rise and the Federal Reserve, at some point, will begin to withdraw liquidity from the capital markets…This week President Dudley of the New York Fed mentioned that the Fed may reinsert itself back into the mortgage backed securities market if interest rates were to rise quickly enough to upset the improving economy.  To us this is a signal that current market rates are not true open market rates and are in fact heavily influenced by government intervention that could create more upside inflation/rate risk in time.”

Source:  Wells Fargo Securities, LLC

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Market Potpourri…It's all about real estate!

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  • Economic Forecast.2.12.10. I uploaded this from Wells Fargo Securities Report.  There are some items in here that you may want to take note of.  Such as housing starts is starting to show it’s rebound as predicted.  Home prices will finish their bottoming out in 2010.  Home sales will show signs of recovery in 2010.  Interest rates will go back up.  For the most part, if you’ve been following the real estate market closely, I would concur with their assessment of the future.
  • CONSUMER CONFIDENCE TAKES A BIG HIT IN FEBRUARY.   The consumers confidence fell by the largest amount since last February.  Now stands at 46.0 from 56.5 in January.  Consumers remained concerned about the present situation of the economy as well as outlook for the future growth.  The labor market remains a major concern for the economy.  I, also view the Consumer Confidence Index as a key truth detector of economic conditions.
  • INTEREST RATE WATCH.  This was good(from the Wells Fargo Sec.report 1.08.10)…Into the Fray of Monetary Policy.  Was it monetary policy or was it lack of regulation that caused the last recession?  …when you generate economic activity by pushing interest rates too low it causes the economy to grow faster than its long-run sustainable rate.  At the beginning of the cycle demand outpaces supply and when supply catches up and many times surpasses demand, something unexpected happens.  This could be a shock to the economy, like a reversal in capital flows, or a sudden collapse of the financial sector, etc., and the house of cards collapses.
  • CENSUS BUREAU PLANS TO FILL A TOTAL OF 1.2 MILLION TEMPORARY POSITIONS ACROSS THE COUNTRY.  This is about 235,000 more than were hired in 2000…payroll employment will start to see a considerable boost by February of this year.  While many of the census jobs will be short-lived (most last for a mere 6-8 weeks), government payrolls should continue to rise for several months with the maximum effect coming in May.  After this, we should see a rapid unwind in employment with considerable declines in government employment in June tapering off through September.  By the fourth quarter the effects of the census should be behind us and the gains we are expecting in payrolls will be almost entirely from the private sector.
  • PRIVATE SECTOR WILL BEGIN TO HELP AS GOVERNMENT SUPPORT WANES.  The Wells Fargo Securities Report from 2.1.10 had this to say; “Private employers will likely start adding jobs slowly by the second quarter.  By the fourth quarter, we expect private payrolls to be growing at a pace of roughly 100,000 jobs per month.  As we move into 2011, employment gains should continue to pick up momentum along with the rest of the economy.  By late next year, private employers could be adding nearly 150,000 jobs per month.
  • CONSUMER CREDIT DROP IN 2009 WAS HIGHEST ON RECORD.  Consumer Credit fell $1.7 billion in December, wrapping up 2009 with a total plunge of $102.3 billion, the largest annual drop on record.
  • THE WORST YEAR FOR RESIDENTIAL CONSTRUCTION ACTIVITY ON RECORD IS BEHIND US.  Builders started just 552,000 homes in 2009, roughly a fourth of the peak activity seen in 2005.
  • INVENTORY OF NEW HOMES FOR SALE…231,000.  Historical average is around 300,000 new homes for sale, we are at an approximate 40 year low of inventory.
  • INVENTORY OF EXISTING HOMES FOR SALE…In December stood at 3,289k existing homes for sale at end of month.   Typically, the average in this country stood between 2m to 2.5m.
  • HOME PRICES.  The worst of price declines appear to be behind us, and many of the widely followed home price indices have already posted monthly or quarterly increases.  The improvement in home prices is still extremely tentative, however, and large numbers of foreclosed properties still hang over the market.HomePrices.2.12.10

 

Source:  Conference Board, U.S. Department of Commerce, Federal Reserve Board, MBA, FHFA,  National Association of Realtors, S&P Corp., U.S. Department of Labor, Wells Fargo Securities, LLC

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Alexandria, MN Commercial Sales for 2009

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In the city last year, we had 6 “good sales”.  A “good sale” is one that is considered an arms length transaction between the buyer and the seller.  The good sales are used in determining fair market value.    Nothing earth shattering, but 6 good sales nonetheless.  According to the city assessor, this is a duplicate of 2008 when we had 6 good sales as well.

Source:  Alexandria City Assessor

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Obama's 3.8 Trillion Dollar Budget

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Real estate got beat up a little last week in Obamas new 3.8 trillion dollar Obama Budget given to Congress last week.  Obama again, is renewing his effort to reduce mortgage interest deductions by high income homeowners and to raise capital gains rates.    The CHANGEs are significant and affect even the lowest of income earners when discussing capital gains.

A coalition of people vigorously opposed this last year as Obama wanted the CHANGE to pay for health care reform, but the coalition of charitable groups, housing, real estate and finance were successful in defeating the proposal.

The same groups of Americans will likely fight the tax increase CHANGE again, but lobbyists say the mere presence of the proposal in the president’s budget makes it a serious threat – especially when the gargantuan deficit spending is ballooning to all-time records.

These CHANGEs set a bad precedent, even if limited to the wealthiest Americans as it could hit high-cost housing markets disproportinately hard.   When the Americans real estate equities have been hit as they have, the timing of the health care expenditure at the cost of real estate may be exceptionally catastrophic.   Any comments?

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