Inflation? Deflation?

Every day, from cable news to the local paper, we are told that inflation is coming...then the next expert says we are in a deflationary spiral...what does it all mean and whom do we believe?

It would seem that everyone is right...here is the best and easiest to explain/understand definition/comparison-contrast of inflation and deflation:

I've seen some quotes equating to deflation as the things you own, and inflation as the things you need. Close, but the real explanation is more like this:

Price declines are occuring in goods/services sectors backed by debt resulting from contracting credit...things that you would normally use a loan/credit to buy (deflation). Price increases are occurring in goods/services sectors acquired with money resulting from increasing money supply (inflation), (things like food, utilities, gas for the car, etc ).

Ben can print money 'til the cows come home, showering every citizen with $10k, $100k, $1m per year/quarter/month. All that will happen is a direct escalation in prices of assets not backed by debt. Price increases for items backed by debt will not resume/recur until there is an underlying organic demand for credit and a corresponding easing in credit terms (inflation). That is, the so-called final (ie private) demand.

And there you have it...

Mortgage applications at a 13 year low...so why is that important?

The Mortgage Bankers Association reported that demand for loans to purchase U.S. homes sunk to a 13-year low last week, and refinancing demand also slid despite near record-low mortgage rates. Requests for loans to buy homes dropped 3.1 percent in the week ended July 9, after adjusting for the Independence Day holiday, to the lowest level since December 1996, the Mortgage Bankers Assn. said....Rock-bottom borrowing costs are helping borrowers with pristine credit to buy and those who still have equity in their homes to refinance.

Take a look at this statistic and chart below: The refinance share of mortgage activity remained constant at 78.7 percent of total applications…so, at a 13 year low number, only 21% of the mortgage applications were for new purchases! On an unadjusted basis, the volume of purchase applications is 43% lower than the same week last year!



If even at sub-5% rates buyers are not interested, what’s going to happen to buying interest if (when) rates go up?

• Unemployed people do not buy homes.
• People who have had their hours or salary reduced 20-30% do not buy homes.
• People with a credit score of 599 or less (25% of the population) do not qualify to buy a home.
• People who lost 30% of their home equity can not sell their existing home to buy a new one.

Where I see the most activity (and a lot of multiple offer situations) is in the sub $150k range…where you can buy and have payments less than a comparable rental. Maybe this is what will happen going forward in all price ranges…activity and competition will greatly increase when the home price/mortgage rate equation delivers monthly payments at or close to what it would cost to rent a comparable home. And, it does not, necessarily have to come from lower prices or lower interest rates….if rental rates increase, that will be the ‘flip side’ of the equation. Rising rental rates, in my humble opinion, are quite possible given the scary statistic of sub 599 credit score Americans. Going forward I can see many, many more people throwing in the “credit score towel”…we will have a decade of renters (and this could raise rental rates)…income reduction, job loss, foreclosures, bankruptcy…some times up to ten years to clear/restore your credit without taking affirmative credit restoration steps.

If you’d like to discuss how this all affects your plans to sell or buy, please give me a call on my direct line at 561-602-1258.

Thanks for reading,
Steve Jackson

A 4th of July gift for you...

How about starting a 4th of July family tradition that doesn't include eating meat cooked outdoors or lighting fireworks?

Below I have given you 4 links to 4 very important documents.

Why not get the family/friends together and read and discuss what is actually behind this holiday. Certainly not all 4 at once...but maybe read the short Declaration of Independence before everyone starts dinner?

1. The Declaration of Independence
2. Constitution
3. Bill of Rights
4. Amendments to the Constitution

Enjoy the holiday...and be safe!

And here is a beautiful acapella version of the national anthem


Steve Jackson

Disastrous home sales report - July 1, 2010

The experts expected home sales to drop once the homebuyer tax credit lapsed at the end of April, but the depth of the decrease was shocking (only to the “experts”).

According to the National Association of Realtors (NAR), pending home sales fell a whopping 30% in May. Their index, which measures signed sales contracts but not closed sales, plunged to 77.6 from 110.9 in April. It's even off 15.9% from a year ago when the nation was barely emerging from the recession.

The pending home sales report is a disaster," said Mike Larson, a real estate analyst for Weiss Research. "Sales fell off a cliff after the tax credit expired. It's the biggest monthly decline ever and the index is at its lowest level since NAR began tracking it in 2001."

(As expected)…Lawrence Yun, NAR's chief economist, downplayed the damage a bit. According to him, customers rushed into deals to claim the credit, borrowing from May sales. Once the economic recovery comes into full swing, housing markets will heat up. "If jobs come back as expected, the pace of home sales should pick up later this year," said Yun, "and reach a sustainable level of activity given very favorable affordability conditions."

The question is when -- or if -- the job market will ever bounce back.

"We're not creating jobs," said Larson. "The housing problems now are being driven by broad economic problems."

Disastrous home sales report - Jul. 1, 2010