GDP 1.6% Okay! Here we go....


August 27, 2010 -- Economic growth has weakened to the point where we now have 1.6% GDP readings as bookends to the year-old recovery. After the deep recession, any positive growth readings are of course welcome, but the very muted pace of growth in the second quarter of 2010 isn't warm enough to feel much different than the recession did.

Federal Reserve Chair Ben Bernanke detailed the Fed's disappointment with
the present rate of growth, and stock markets were cheered that he took
pains to express both optimism for the coming year and that the Fed still
has tools it can employ to ward off deflation or even a double-dip
recession. Just as 1.6% growth is insufficient to produce much economic
heat, cheap mortgage rates alone are insufficient to produce recovery in
the housing market.

Along with the broad economic slowdown, the hangover from the homebuyer
tax credit "party" has become increasingly apparent. Arguments about its
benefits or drawbacks aside, there can be no doubt that the credit has
produced distortion in the housing market. The advancement of already weak
demand into the spring of this year created a minor peak of sorts, and we
are now deep into the valley on the other side, with (hopefully) no place
to go but up in the coming months. Given the summer economic swoon and a
lack of job growth needed to foment demand, a rebound will probably come
later rather than sooner.

Existing Home Sales dropped by a shocking 27.2% in July, landing at a pace
far weaker than expected. The 3.83 million annualized pace was the worst
reading of either the recession or the recovery. Meanwhile, the slump in
demand means that available supply ballooned up to 12.5 months, a level
certain to put renewed downward pressure on home prices. Given the size of
the drop from June's 5.26m rate, there is some hope that next month will
bring an upward revision, but even if it does, home buying has come to a
virtual standstill.

New Home Sales told much the same tale. In July, an annualized sales rate
of 276,000 units was revealed, the lowest in the 46-year history of the
series. Worse, downward revisions to the last couple of months make the
picture even bleaker, with May's already-pathetic showing ratcheted down
to only 281K. There are still some 210,000 units built and ready to be
sold on the market, probably the most difficult to sell units far from
city centers and amenities, but it is quite clear that there is not enough
demand to warrant any optimism among builders (or any economic boost from
homebuilding) at this point.

There is perhaps a little irony in that among the worst housing markets in
memory comes what might be the best refinancing opportunity ever...
provided you can make it over the hurdles needed to access today's
fantastic mortgage rates. Unfortunately, too few borrowers can, and while
refinancing activity has picked up to a fair degree, the aggregate amount
of activity so far is small relative to other refi booms and boomlets.
With about 11 million borrowers underwater to some degree, there are a lot
of people who might wish to refinance but cannot, and probably many
millions more who lack the steady income needed to qualify.

We seem to be in a vicious little trap at the moment in a number of ways.
There's not enough job growth to produce the kind of consumer spending
which can produce more and more self-sustaining growth. There aren't more
jobs available because there isn't enough final demand to produce them.
Due to that lack of growth and a lack of inflation, we have fantastic
rates for borrowers who either lack the confidence or income to take
advantage of them to buy homes, and we have millions of folks who would
love access to those rates but cannot qualify to borrow... because they
have no jobs, or because others have no jobs to produce the kind of growth
which would serve to create demand to firm home prices... and around we
go.

Rates are at a 55-year low







--
Richard J. Russell
President\CEO NMLS # 31133
Richland Equity Resources Corp NMLS #18874
DBA the richland group
551 Fifth Avenue - Suite #1620
New York, New York 10176

Website: www.richlandequity.com
E-mail: mortgage@richlandequity.com

Tel: (212)681-9888
Fax: (212)681-9892