Real Estate Outlook: Economy Solid and Encouraging

Written by Posted On Wednesday, 19 December 2007 16:00

Despite the impressions you might get from the network news, the U.S. economy continues to churn out solid, even encouraging, numbers -- and that's important for anyone interested in real estate.

Last week the federal government reported retail sales up by 1.2 percent in the past month, strong growth in new jobs, exports and household incomes. These are the very economic fundamentals that create an underlying base for a national recovery in housing and real estate.

Take away these supports, and it would be much tougher to pull housing, which as we know is well into its post-boom correction cycle, out of the slump.

But all these positive federal numbers last week had a curious effect on the financial markets: When the economy looks like it's expanding a bit faster than Wall Street expected it to, investors sometimes begin to worry about the "I" word-inflation -- and interest rates tick back up a little.

That's precisely what happened, even in the face of the Federal Reserve's quarter-point reduction in short-term rates. Thirty year fixed mortgage rates edged up over 6 percent, and fifteen year rates jumped to 5.75 percent.

But the fact is: rates this low are great for anyone looking to buy a house. They are nearly at two year lows; and barely half a point higher than their 40 year lows. So maybe it was no surprise that despite the slight rate increase, mortgage applications rose last week rather than fell.

Maybe people are beginning to get the picture: Low home prices combined with low mortgage rates means potentially excellent buying opportunities!

Certainly the latest report from the National Association of Realtors bears this out: Pending home sales rose for the second straight month -- and were up by 16 percent in the Northeast region and 8.4 percent in the West.

We all know that housing still has a long way to go to full recovery, but Dr. Lawrence Yun, chief economist for the National Association of Realtors, believes that "the worst of the credit crunch has already worked its way through" the system … and home sales should not only bottom out but register a modest increase sometime during the next 12 months.

We'll keep you posted on all of this in upcoming reports.

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