Boston Real Estate Blog

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World economy overheat threatens US

Will the overheating world economy bring down the US?

Maybe, says Lou Barnes.

Fed foolish to raise rates now
Commentary: Despite U.S. problems, turmoil yet to unfold in Asia, Europe
By Lou Barnes, Inman News

The credit markets have concluded that inflation risk now forces the Fed into a sustained series of increases in its overnight rate, presently 2 percent.

Interest rates — all of them — spiked in the last 10 days. Lowest-fee 30-year mortgages to 6.625 percent (if you’re a shady character, FICO under 720, make that 6.75 percent), 10-year T-notes to 4.2 percent, and Fed-tied 2-year T-notes to 2.9 percent (up 0.55 percent this week).

The credit markets jumped to Fed conclusions after: oil hit $135; European Central Bank Chairman Jean-Claude Trichet indicated a tilt to tighten there; a string of inflation-centered speeches by Fed officials; and a rebate-bloated 1 percent pop in May retail sales.

It is folly to quarrel with a market move like this, but that’s what I’m going to do.

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I’m no economist, but …

According to Boston Fed President Eric S. Rosengren, the weak dollar isn’t behind the meteoric rise in gasoline prices.

Boston Fed chief rebuts theory that rate cuts spurred oil prices; Run-up in petroleum dwarfed dollar’s decline – By Robert Gavin, The Boston Globe

Although the decline in the dollar against other currencies has been a popular explanation for oil’s record run, Rosengren said data show the increases in oil prices have far outstripped the pace of the dollar’s decline. In the past year, the dollar has declined 13.6 percent against the euro, while a barrel of crude oil was priced at $131.31 yesterday on the New York Mercantile Exchange, up 99 percent from a year ago.

Oil trades in dollars. Many analysts say when the dollar loses value, it prompts producers to demand higher prices to offset the loss. The weaker dollar also raises demand from buyers who hold stronger currencies and investors seeking a hedge against inflation, analysts say.

I was hoping it was the reason, since it’s the only economic theory I can actually follow.

Other guesses?

Recession? Yeah, I’ve heard that rumor

Lou Barnes plays World Economist, in his weekly column.

Will oil prices moderate? Is there a “commodities bubble” happening? I don’t know.

All roads lead to global recession
Commentary: Layoffs, oil, foreclosures sustain credit crunch
By Lou Barnes, Inman News

In the general chaos Friday, oil in the largest single-day spike ever, near $140/bbl, Dow off 394 points, the only market that did not move was credit.

Mortgages are still near their 90-day high, 6.375 percent, and the 10-year T-note is still in its trading range at 3.92 percent. Long-term rates have held in belief that economic rebound, or inflation, or a weak dollar would force the Fed to raise its rate, and soon.

OK, group: a show of hands, please. We’ve got a million homes in foreclosure right now, delinquencies rising fast; we shed 45,000 jobs in May; gasoline is on the way to five bucks, $100 per fill-up; the purchasing managers’ indices were zero-growth for May; overall vehicle sales in May fell 14 percent; credit ratings were cut for Merrill, Lehman, Morgan, WaMu, Wachovia, Ambac, MBIA, MGIC, and PMI, all with negative outlook, and you think the Fed should raise the cost of money? Really?

I suppose a case could be made for quick suicide by Fed bullet instead of all that time burning expensive gas, waiting for carbon-monoxide to get me, but I’d rather take my time. If energy markets do not break, all roads lead to global recession: here, directly; other places in the aftermath of a losing fight with inflation.

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Economy at a standstill, for another week

This week, Lou Barnes sees more of the same. Not worse, not better.

I’ll be happy with not worse, my friends.

Will the “global economy” be enough to keep the US out of more trouble? I don’t know.

Lousy numbers escape recession dunce cap
Commentary: Global economy gives us a jolt
By Lou Barnes, Inman News

After six weeks in a narrow range, a little not-so-bad economic news blew long-term rates to the highs of 2008: the 10-year Treasury to 4.13 percent (the first time above 4 percent since New Year’s) and low-fee mortgages to 6.375 percent. Both of those yields are better this morning, but we will not see five-something mortgages again without a new round of bad economic reports.

The psychology-reversing news came in two pieces. The rout started on Wednesday with the report of April orders for durable goods: down 0.5 percent, overall, but ex-transportation (airplanes and autos) up 2.5 percent, and “non-defense capital goods” plus 4.5 percent. Yesterday’s coup de grace: First-quarter GDP was revised to plus 0.9 percent from 0.6 percent.

If these two reports seem like less-than-spectacular signs of resurrection, you are well on your way to a degree in economics. These are lousy figures describing an economy with hardly any forward momentum. However, they are not recession numbers. For three-something Treasurys and five-something mortgages to look good to investors, recession fear must return.

The bond market is a binary place: The economy is either going to hell and it’s a great time to buy bonds, or the economy is OK and everybody who bought a bond is a greasy spot in the road.

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Inflation threatens world economy

This week, Lou Barnes talks inflation. The overheated economy type of inflation.

Welcome to the Check Republic
Commentary: Economy glass half empty or half full?
By Lou Barnes

Mortgages and 10-year T-notes tried their tops all week long (6.25 percent and 3.92 percent, respectively), looking like they would break upward … and held. Rates have improved today, but a run into the fives will require a weakening economy. Name your poison.

The stock market’s persistent strength makes sense to all who believe that the economy bottomed in March, that we will not have a real recession, that the credit markets are healing quickly, that overseas strength will prop our economy and big-business profits, and that the tax-rebate checks will ensure a good summer.

Piece of cake. Traders call it the Check Republic.

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Economist sees lower prices in the future

Wait a minute!!! He wrote this, FIVE YEARS ago!

“What you are seeing are signs of a market peak at the high end,” said Robert Shiller, an economics professor at Yale University. “First there’s a rise in inventory, and then prices fall.”

If you had taken his advice in June, 2003, you would have missed out on one of the greatest wealth-creation periods in this nation’s history.

In fact, Mr Shiller (Dr?) was right only one year (so far) out of ten in his predictions for lower home prices.

A meteorologist does better than that.

A seismologist does better than that.

A major league baseball player does better than that. (Most of them, at least.)

Why do people trust him more? Because he was finally right?

People have preconceived notions, then fit the facts to what they believe.

We’re all the same that way, right?

(Sorry for this post, I had to be a Realtor for a minute.)

Source: For Luxury Properties, It’s A Buyer’s Market – By Thomas Grillo, The Boston Globe

Breaking: Is the US in a recession?


Economy grows by only 0.6 percent in first quarter – By Jeannine Aversa, Associated Press

The bruised economy limped through the first quarter of this year at a six-tenths of a percentage point growth rate as housing and credit problems forced people and businesses alike to hunker down.

The country’s economic growth during January through March was the same as in the final three months of last year, the Commerce Department reported Wednesday. The statistic did not meet what economists consider the classic definition of a recession, which is a retraction of the economy. This means that although economy is stuck in a rut, it is still managing to keep growing — however modestly.

Consumer confidence down, home sales down, nat’l employment down

Care to place a bet on first-quarter GDP, scheduled for release tomorrow?

From Wikipedia:

In macroeconomics, a recession is a decline in a country’s real gross domestic product (GDP), or negative real economic growth, for two or more successive quarters of a year.

In the US, the judgment of the business-cycle dating committee of the National Bureau of Economic Research regarding the exact dating of recessions is generally accepted. The NBER has a more general framework for judging recessions:

A recession is a significant decline in economic activity spread across the economy, lasting more than a few months, normally visible in real GDP, real income, employment, industrial production, and wholesale-retail sales. A recession begins just after the economy reaches a peak of activity and ends as the economy reaches its trough.

I realize “terms and definitions” can sometimes be used to obfuscate real issues, but I think there is some merit to sticking with NBER’s definition of a “recession”. What we’re all wondering about is, will our economy be getting better or worse over the coming months, and how are we doing, so far?

My guess? Yeah, we had positive growth in the first quarter. Which means we’re not in a “recession”. So, take that, Feldstein!

This will do nothing to sooth the fears of rational people. They’ll jump on the number and say, “Well, that’s just one definition.” Or, “Well, maybe not technically, but we’re hurting!” Or, “Well, not in first quarter, but we will be in quarter #2!”

All I’m saying is, our economy seems to be in flux. Therefore, let’s not lose our cool. And, let’s not jump at every promise of “bailouts” and “fiscal stimuli”.

Regardless of what you read in the daily paper, tell me, are you really hurting right now? I mean, at all?

Economy shows resiliency … well, at least to two guys

Still teetering, I guess.

(But, whether or not the United States is in a “recession” is irrelevant, isn’t it, if you’re out of a job or can’t sell your home, right?)

The takeaway from below is, if you wonder where the US economy is going, it’s an unknown. Certainly, not “up, up, up”. Any forecast beyond that is certainly “best guess”. Which, after all, is what economists, meteorologists, and seismologists do, right?

New home sales plunge but jobless claims cheer – By Alister Bull, Reuters

U.S. new home sales plunged to their lowest in more than 16 years in March and prices plummeted but jobs and factory data suggested slumping home values may not be hurting the economy as much as feared …

First-time jobless claims fell sharply last week and a dip in March durable goods orders was mostly due to a big drop in orders for transportation goods, led by motor vehicles.

“They sure don’t look like recession numbers to me,” said Michael Darda, chief economist at MKM Partners LLC in Greenwich, Connecticut, referring to the jobs data.

The number of U.S. workers filing initial claims for unemployment benefits fell by 33,000 last week to 342,000, the Labor Department said, compared with economists’ forecasts for 375,000 new claims.

The four-week moving average of new claims, a more reliable guide to underlying labor trends because it irons out weekly fluctuations, eased last week to 369,500 from 376,750.

“The 4-week moving average is still consistent with a slowdown, but the idea this is a second Great Depression or Japan circa-1995 is just utter hysteria and the numbers I think prove that,” said Darda.

Nondefense capital goods orders excluding aircraft, a closely watched proxy for business spending, was unchanged as forecast and the previous month was revised up to show a 2.0 percent decline, from a 2.4 percent drop reported before.

But shipments of this so-called “core” measure of capital spending jumped by 1.2 percent, possibly hinting at stronger foreign demand for U.S. equipment, while inventories in this category increased by 1.0 percent.

“The net effect of all this was to push our estimate for first quarter GDP from down 0.1 percent to up 0.3 percent,” said Morgan Stanley economist David Greenlaw …

A prediction of positive GDP?

We’ll see about that, now, won’t we?

How are you dealing with this recession???

great depression* The National Association of Business Economists’ latest survey has 45% of its members predicting a recession this year—over double the percentage of three months ago.

* Warren Buffett: “I would say, by any commonsense definition, we are in a recession.”

* Economist Edward Yardeni, economist: “I think we are falling into a consumer-led recession.”

If this is a recession, I’ll take it:

Massachusetts workers averaged $1,008 in pay each week, ranking fourth-highest among all states nationally in the second quarter of 2007, according to figures released Tuesday by the Bureau of Labor.

The BLS found employment grew in Massachusetts by 1.2 percent in the quarter, the same as the U.S. … [w]age growth in the Bay State was 4.8 percent …

Among the 328 largest counties in the U.S., average weekly wages in Suffolk County were $1,284, ranking it ninth highest in the country. [emphasis, mine].

If you want to discuss this further, I’ll be at Rocca.

Source: Mass. workers average more than $1,000 per week in pay – Boston Business Journal

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