Higher prices, real inflation and further excess inventory of homes in the market due to foreclosures are weighing heavily on the US economy. Also, Mr. Greenspan speaking at a conference this past week stated that he believes the worst is over as far as the US financial crisis. Mortgage bonds ended a down week due to these factors, hence mortgage rates were up. However, because of continued volatility in the markets and an oversold situation in mortgage bonds we expect a correction lower for mortgage interest rates in the near term.
This past week May retail sales were slightly higher. We believe this is a blip due to tax rebate spending and not a totally acurate indicator of retail sales. Consumer pricing rose and consumer sentiment dropped to a 28 year low. This week we look to producer pricing, housing starts, industrial production and initial jobless claims for further economic guidance.
Homebuilders have cut new home starts by 55% with no material affect on reducing inventory and bolstering prices. We believe house prices will have to fall further in many areas of the country in order to get buyers in the door. The current market continues to provide outstanding opportunities for homebuyers and investors, alike.
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