State of the Economy
Speaking of the Economy, Where Are We?
Thursday, August 26th
It’s late August and we’re almost nine months into the year. The stock market has hardly moved, but the scorecard puts the overall market in the red by about 2 percent. Housing? It seems like nobody is in the market to buy a house. There are simply too many houses for sale and not enough buyers who feel secure enough to take out a mortgage. Existing home sales in July were down by more than 27 percent. And how are your savings doing? Your bank is not willing to pay any interest on your savings and neither is the U.S. Government. The rate for holding onto a US Treasury Bill for two years is just one-half of one percent. Everything’s down, but so are gas prices, which is good news!
Let’s circle back to housing for just a minute because when economists and newscasters talk about the economy, we always hear them refer to the term, housing starts. Unlike unemployment, housing starts are considered leading indicators for where the economy is headed in the future, and even more importantly, where American consumers believe the economy is heading. Economists and market analysts pay close attention to these monthly reports that indicate the number of brand new residential construction projects that are underway or have been started during a specific time frame – usually over the past month. If the economy’s looking up, more people are generally going to feel confident about investing in a new house and confident they can keep making the mortgage payments.
We all know now that house prices can’t always go up, so where do we go from here? Lots of experts feel strongly that it was the government who kept the punchbowl filled with respect to the “house party” thrown over the past two decades. But now that the government has allowed the $8,000 tax credit to expire, it feels like all the alcohol’s been drained out of the punch, and in most parts of the country, house prices have already dropped more than 25 percent since the start of 2008. Mortgage rates are at their lowest rates in decades, and that’s a good thing for first-time homebuyers, but with unemployment rates so high, I’m wondering if private lenders are really motivated to make home loans? Well, not without the fortification of a hefty, healthy down payment of 20 percent or more and an impeccable credit history. If you’re already a homeowner and your house is truly worth less than the outstanding mortgage balance, what really matters now is how long you intend to live in your house. If you are looking to buy a house, it’s smart to think about ownership in terms of ten years – not the three or even five year time horizons like the good ‘ol days.
For more on the real estate markets effect on the U.S. economy, click here.
