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 OutlookMarch 17, 2008 It seems pretty clear that the US economy is in a recession right now. This decline has been coming for some time, even though dramatic events on Wall Street make it seem like a sudden event. Because this recession did not spring on us, it will also not leave us soon, whatever the technical definitions may say. I expect slower economic activity for several years. Fundamentally, and very much like Wall Street, US consumers have run out of ways to borrow money and must therefore now spend less than they used to. This will not be quickly fixed. In previous recessions, it was two to three years before consumer borrowing [and spending] recovered. Part of the problem is that home prices are likely to fall further in some markets during the next couple of years, and will increase by only modest amounts in most of the rest. Homes are the asset most people borrow against. The economic significance of the 'housing market crisis' is not that some people will lose their homes, but that many homeowners won't be able to borrow more money until home prices rise again. Overall, home prices were still up 1 percent in the last 12 months, but were down in 40 of the 100 largest markets, sometimes by double digits. New permits for single-family homes in January were down 40 percent from last year, including a 60 percent drop in California. GDP increased at just 0.6 percent in the fourth quarter of 2007, down from 4.9 percent in the third quarter. The lower spending was spread across the board. Consumers bought less furniture and fewer clothes. Businesses bought less industrial equipment, fewer trucks, and cut their inventories. Homebuilders built fewer homes. Exports decreased. The government spent less on Defense. Jobs in February were up just 0.6 percent from last year. Jobs in manufacturing were down 2.2 percent. Jobs were down slightly in the retail sector, reflecting lower consumer spending, down in finance, down in real estate. Jobs were up in professional services, health services, restaurants, and government. The delinquency rate on home mortgages held by commercial banks rose to 3.1 percent in the fourth quarter, compared to 1.9 percent just a year ago. Ominously, delinquencies rose to 2.7 percent on commercial mortgages, the highest level in 10 years, and to 4.6 percent on credit cards. ARCHIVED OUTLOOKS
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