First Glimmer of Hope in Real Estate

It may be that the price of real estate has fallen enough to attract buyers. Price will go up when the existing high inventory levels go back to normal. The high level of foreclosures accelerates this process. Banks generally don't have the expertise or staff to take care of the houses they own due to foreclosure. Many of these bank-owned houses have fallen into such disrepair that they will have to be torn down.

Last Friday, the National Association of Realtors said that existing home-sales increased by 5.5% in September from August's level. Prices continued to fall but the level of sales was the highest in more than a year and inventories of homes still on the market fell 1.6% in September for a 9.9 month supply; there was a 10.6 month supply at the end of August.

Today, the Commerce Department released September new-home sales. Single-family home sales increased by 2.7%; during August sales decreased by 12.6%. Inventories fell 7.3%.

Oil and Gasoline Inventories Up - Again

Crude Oil is used for much more than merely heating houses or gasoline for cars. Uses include plastics and cosmetics, for example. At its high in July, crude was over 147 - right now it's 68.20.

Gasoline was 3.58 in mid July - now it's 1.57. Of course this is the futures wholesale price. The retail price here in New Jersey is roughly 30 cents higher. That equates to gasoline in NJ less than $2.00 in a few months if price doesn't reverse and zoom up.

The tremendous reduction in retail crude and gasoline prices is acting as a giant, if unheralded, tax cut on the overall economy. Money that people formerly had to give to their local gas station is now available for other expenditures.

Another Depression or Political Fear Mongering?

Big media and elected politicians from both parties have been warning that a depression is iminent if a bailout of financial companies impaired by sub-prime toxic bonds is not passed soon. Actually, immediately! Day after day, these warnings were not obeyed by investors in the stock market. For one day, it looked like the populace was listening as the stock market lost 8% in one day when the House of Representatives defeated the bailout. But the market went up almost as strongly the next day as it had gone down. Clearly, it was a relief that the bailout was defeated as a very large majority of the public - cutting through both parties - is, and remains, firmly against any bailout. 

But what does the data actually show about the state of our economy?

The original estimate of GDP for the second quarter, 3.3% growth, was revised down to 2.8% growth on September 28th. A recession is defined as two consecutive quarters of negative growth. Current financial difficulties have been with us all year. Given the dramatic reduction in the price of crude oil and gasoline, is it likely that the third quarter GDP will be reported as a loss?

Strong consumer confidence underpins the GDP's suggestion of stable growth. It rose in August over July and came in at 70.3 in September versus 63 for August. This was the biggest monthly gain since January 2004. Consumers are said to make up roughly 80% of the economy. It doesn't look like they're searching for the nearest soup line.