Weekly Market Commentary

Weekly Commentary
by Eddie Knoell
7/21/10

As numerous economists have argued, the $8,000 and $6,500 tax credits for home-buyers motivated people to accelerate their purchase decisions. Thus, home sales that would have shown up in the relatively near future have already occurred.

By this logic, it is easy to understand why sales volume dropped off precipitously as soon as the availability of the tax credits ceased—and, by extension, why sales figures haven’t been increasing in recent weeks. Further, it is easy to understand why the number of people applying for new purchase money mortgages has not begun once again to grow.

We are in a very difficult stretch of time economically. At this point, the recovery continues to move forward in its rather weak and stumbling fashion, and every stumble leads many analysts to worry aloud that we are actually slipping into a second stage of the recession.

It is very impressive that the annualized level of core inflation as measured by the Consumer Price Index is a mere 1% (that is, once you remove the volatile food and energy prices from the mathematics). It is even arguable that such a low rate of price appreciation is a good thing for most of us, particularly those on fixed incomes. But it isn't a harbinger of deflation; instead, it’s a reflection of how slow the economic growth is currently. Slow, but growth nonetheless.

It does raise concern that several economists have lowered their forecasts for Gross Domestic Product growth—that is, overall economic growth—in this quarter from the early 3% range to the mid-2% range. But again, that simply restates the fact that the economy is slower than expected, not falling off a cliff.

The sturdy Moody’s Economy.com view is that employment growth will become evident in early 2011 and retail sales will increase and, further, that 2011 will be a year of gradual recovery among real estate sales and values. It can’t come soon enough…but it will indeed come.