Economist's Commentary: July 1, 2008

Quick Take on the Economy: July 1, 2008

By Lawrence Yun, NAR Chief Economist

Total construction spending fell 0.4 percent in May. The drop was driven by, not surprisingly, fewer residential homes being built. Commercial real estate building completion and public construction activity rose 0.2 percent and 0.4 percent, respectively.
Spending measurement is based on the completion of buildings and projects. So the figures represent completions. It also means that residential construction spending will fall - probably for the rest of the year - given the declines in housing starts and housing permits.
The rise in commercial real estate completion is mostly due to rise in prices. Real inflation-adjusted spending is falling.

The Institute of Supply Management showed a surprising gain in June. The latest reading of 50.2 is an improvement from sub-50 figures in the past four months and marks expansionary conditions in the nation's factories.
This index is one of the favorites among economists because of its timeliness and because it tends to be cyclical.
The increase came from a continuing surge in exports. A rise in inventory also contributed to a higher overall index as companies are restocking depleted inventories.

The yield on 10-year Treasury is trading at 4 percent. It is a nice respite after being above 4 percent for most of June.
30-year mortgage rates are generally priced off the 10-year Treasury. Therefore, homebuyers are given a golden chance to lock-in rates at somewhat lower rate. Most forecasters are calling for a higher yield on 10-year Treasury by the year end.

The nation's factories are producing more. However, the production gains are occurring while jobs are being cut.
Lock in those mortgage rates now. Rates have come down - before likely heading higher later in the month.

This is one in a series of commentaries by the Research staff of the National Association of REALTORS®. Read more commentaries >

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