ECONOMIC OUTLOOK Over twenty years of proven expertise and trend analysis in evaluating residential property values. |
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To help our customers better understand current market conditions and projections, Local Market Monitor provides periodic analyses of national economic trends and their impact on real estate markets. This analysis, developed by Ingo Winzer, reflects his view on the current outlook for the national economy. National Economic OutlookMay 13, 2008 Although the technical qualifications haven't been met, the US economy is clearly in a recession. Estimates for the first quarter show the economy growing at an annual rate of 0.6 percent, but only because inventories increased. Making stuff that piles up in warehouses isn't a good thing. Personal spending grew just 1 percent, the lowest rate in many years, and a reflection of the fact that consumers have run out of extra money to spend. This is the most important fact facing the economy, and the reason why a quick recovery is not possible. Consumers have spent all their home equity and have maxed out their credit cards. Now, for a while, they will have to spend less. As expected, investment in home construction decreased, at a huge 27 percent annual rate. More troubling is that investment in other construction also decreased, possibly the consequence of tighter credit conditions but also because office vacancy rates increased, for the first time in years, to 13.5 percent, according to Grubb & Ellis. Office vacancy rates are up because the job situation is deteriorating. No need for more space if you're not hiring more people. Overall, jobs in April were up just 0.3 percent from last year, the lowest increase in many years. Not surprisingly, the number of construction jobs was down 5 percent. Of greater importance is that manufacturing jobs were down 2.4 percent, retail jobs were down 0.8 percent, and jobs in information, finance, and business services - office jobs - were flat. The US population grows 1 percent per year, so there are problems whenever job growth is lower than that. The fallout from the housing situation continues. New home construction in March was down 45 percent from last year, including a 55 percent drop in Florida and a 65 percent drop in California. The delinquency rate for home mortgages held by the largest banks rose to 3.24 percent in the fourth quarter, equal to the highest rate during the 1992 recession; and it's going to get worse. The home vacancy rate in the first quarter was 2.9 percent, the highest rate ever recorded, and that too will get worse. Almost paradoxically, the rental vacancy rate also increased, to 10.1 percent. What we are seeing is not a shift of people out of expensive homes and into cheaper apartments, we are seeing a large surplus of all kinds of housing, mainly brought about by construction and sales of investment properties. In some Florida markets in recent years, more than half of all home sales were to investors. Don't look for home prices to firm up until that surplus has been moped up. ARCHIVED OUTLOOKS
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