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 OutlookJanuary 14, 2008 The national economy shows strong signs of slowing down in the last few months, mainly due to lower consumer spending. In addition to tighter credit conditions from lenders, burnt by sub-prime mortgages, consumers face the psychological specter of losing their job as the unemployment rate rose. Revised figures show GDP grew at a high 4.9 percent annual rate in the third quarter of 2007, better than the initial estimates and despite a drop in housing investment that knocked 1 percent off the total. The good showing, however, was mainly due to exports and defense spending. Exports accounted for 2 of the 4.9 percent due to a weak dollar that has lost 10 percent of it's value against the euro in the past year. While the boost to exports is good in the short run, the weak dollar drives up the cost of financing government debt, a large portion of which is bought by foreign governments, and drives up the cost of essential imports like oil. The number of jobs in December was up just 0.9 percent from a year ago, the smallest increase in four years, while the unemployment rate rose to 5 percent. Healthcare and government provided much of the increase in jobs, while jobs were lost in construction, manufacturing, banking, and employment services. Ominously, jobs in the retail sector grew a tiny 0.2 percent. Merchants don't add jobs if sales are slow. The consumer carries the economy on his back and has been spending beyond his means for a good number of years, abetted by credit card issuers, car finance companies, and home equity loans that were easy to come by when home values were increasing. If consumers can no longer spend more than they earn, the boom economy is over. The National Association of Realtors reports that the number of home sales in November was down 20 percent from last year, and that home prices were down a bit more than 3 percent. While the realtors are optimistic that the worst is over, I see a much longer period of adjustment, especially in those markets where home prices had been increasing at double-digit levels. When home prices are far out of line with local incomes, prices can fall as much as 25 percent, spread over a number of years, and not regain their former level for a decade. Home builders in November applied for 20 percent fewer building permits than a year earlier, including 40 percent fewer in California and 50 percent fewer in Florida. ARCHIVED OUTLOOKS
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