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 OutlookNovember 19, 2007 The national economy continues to expand at a modest rate, propped up by exports, defense spending, and demand for healthcare. The longer-term effect of the housing slowdown is now being felt in job losses and tighter credit. GDP grew at a 4 percent annual rate in the third quarter, matching the same rate of the second quarter. Consumer spending grew at an encouraging 3 percent rate and investment in computers and software grew a good 6 percent, but, as in the previous quarter, more than half of current economic growth is due to long-term weaknesses, namely exports (a cheap dollar) and defense spending (Iraq). The number of jobs in October grew 1.2 percent from last year, continuing a string of slow-growth months. We are seeing the effects of the housing slowdown, with jobs down 1.4 percent in construction and 2.5 percent at furniture, appliance, and building materials stores. Total manufacturing jobs were down 1.4 percent, including jobs in the manufacture of computers and cars. Despite turmoil in markets, finance jobs grew. The strongest job growth, 3 percent, continues to be in healthcare, a sector of the economy we considered a service but that is ultimately a cost. The unemployment rate inched up to 4.7 percent. Many interested parties would like to see the end of the housing slowdown. Housing cycles go in years, not months, so the best news we can look for right now is that things won't get worse. But the data so far don't show a bottom of any sort. The National Association of Realtors reports that home sales in September were down 20 percent from last year, and that home prices were down 5 percent overall, 9 percent in the West. The intentions of home builders have likewise waned, with a 30 percent decrease in new building permits. The speculative nature of much home building and buying in the last few years is shown by the large drop in permits in California, 45 percent, and Florida, 50 percent. Builders built as long as lenders were willing to finance construction projects and mortgages. And lenders were willing to finance almost all mortgages because they could package and sell them to hedge funds that had a voracious appetite for debt with above-average interest rates. The rapid growth of hedge funds, which need high-risk investments, didn't create the housing boom but certainly prolonged it into the period of the worst speculative excess. ARCHIVED OUTLOOKS
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