Housing Market: Investors are returning; not for flipping, for the long-term.
The Economy: Deflation? No. Inflation? Maybe, following stimulus spending.
Priming the Pump: For now, though, stimulus funds are going a long way.

Housing Market
The housing market may feel even worse in coming months, as foreclosures keep rising and home prices continue their downward slide.
No doubt the patient is still very ill.
But there are signs the fever is breaking and that improvement is at last, at least, imaginable.

Sales are starting to strengthen. Realtors are seeing more traffic, lured in part by the tax credit for first time buyers as well as by low mortgage rates.
Investors are returning to hard-hit areas in Fla. and Southern Calif. as well as to some regions that didn’t experience the price bubble and bust.

This time, they’re not in for a quick buck ... buying and flipping homes to snare fast price hikes.
Instead, they see solid cash flow prospects ... rental income high enough to cover all their expenses. It helps that tighter credit is swelling the ranks of potential renters, helping to offset what’s likely to be a quarter million fewer new households formed this year, with layoffs and less hiring of college grads forcing more extended families to share living space.
The fact is, the painful bloodletting is starting to rebalance the market.

Foreclosures will keep pressure on prices for another year or so. In Phoenix, Las Vegas, Tampa, Fla., Calif., and other bubble areas, where walls of foreclosures still loom ... more adjustment. Big drops there will pull the national average down 10%, now through the first quarter of 2010. Indeed, bank takeovers of homes ... up sharply in March ... will likely rise further in coming months as lenders lift 2008 moratoriums. This year ... over 3 million homes in the first stage of foreclosure. The White House plan to keep 4 million mortgagees in their homes won’t come close to meeting that goal.

But the worst may be over in most places. Prices are leveling off in cities such as Jacksonville, Fla., and Dallas plus Washington, D.C.’s inner suburbs. Much of the country can expect little or no further deterioration in prices this year.
Sales numbers for both existing and new homes will bottom out in summer.

What’s more, there’s good news buried in March’s big drop in housing starts. While starts of multifamily units ... condominium and apartment buildings ... sank, single family home starts were flat, following a modest early spring bump-up in Feb. Plus, actual housing starts are catching up with the decline in new-home permits, suggesting that the flow through the construction pipeline is finally ebbing.
Still ... no hope for a pickup for the building industry until 2010 at best. With the supply of unsold homes about 1 million higher than in “normal” times, there’s plenty of inventory to work off. Housing starts won’t hit bottom till year-end.

The Economy
Is the unexpected decline in March consumer prices a deflation alarm bell?
Probably not. Although the year-over-year decrease was the first since 1955, the core rate of inflation, which excludes food and fuel prices, came in at 1.8% from March 2008 to March 2009, the same rate as in Feb. It was mainly the big drop in oil prices from last year to this that caused the slide in the Consumer Price Index.
The dip simultaneously offers reassurance that inflation is also not a worry ... at least for now. Ongoing massive government infusions of cash into the economy set the stage for it down the road, however, once consumers start spending again.

Priming the Pump
Economic stimulus funds are beginning to flow out of Washington.
Of the nearly $800-billion total, about $12 billion has already been spent ... $43 billion more, obligated. Bids are out or checks cut for roughly 15% of funds dedicated to roads, bridges, and other infrastructure ... chiefly for transportation. Two thousand projects have gotten the nod. Hundreds more are in the works.
States are moving quickly on physical infrastructure. Widening of U.S. 69 near Kansas City, Kan., has begun. Md. will soon resurface Anne Arundel Co. roads. Calif. is soliciting bids for repairs to oil and gas pipelines. Neb ... for construction of an interchange on I-80 near Lincoln. In addition, Philadelphia is taking bids for solar panels to be installed on public buildings. The U.S. Fish and Wildlife Service is scouting companies for demolition and construction work in Great Lakes states.
Health related spending will trickle out more slowly. So far ... $500 million in emergency grants to 1,200 community health clinics to help with rising workloads. Toward the end of 2009 ... $17 billion in incentive payments to health care providers who adopt electronic medical records. Tech standards need to be established first.

One silver lining in the soft economy: Stimulus money is stretching further than expected. Intense competition for contracts is slashing price tags on projects. Upgrades at Md.’s BWI Thurgood Marshall Airport will cost 20% less than budgeted. lo. officials say they’re getting bids 30% below budget from reputable contractors.