Thursday, June 5, 2008
Recession or not?
What's happening in the local housing market is greatly impacted by what's happening in the general economy and in the local economy. Below a recent report from one of the real estate news sources that I get takes a look at the issue of recession and whether we are in one or not and what that means.
Recession or no recession? That's a key question for real estate because any sort of deep or prolonged recession would choke off all hopes of a housing recovery anytime soon. But last week's big economic number -- positive growth in the national gross domestic product for the second straight quarter -- is the latest sign that this economy still has some fight left in it.
Economists define a recession as two straight quarters of negative GDP... so we're definitely not seeing that. No question though: The GDP growth rate is anemic -- just under one percent for the first quarter. But remember that doomsayers last Fall had projected us to be well into a recession by now. Instead, the economy keeps defying the worst predictions: Exports are booming, job growth remains positive, unemployment is at 5 percent. And the National Association of Business Economists is forecasting a much healthier 2.2 percent growth rate by the third quarter.
Even new home sales have bounced back for the first time in half a year -- up by 3.3 percent last month, according to the Commerce Department. Mortgage interest rates continue to be highly favorable for home shoppers. The Mortgage Bankers' latest weekly survey found 30-year fixed rates remain just below six percent on average, and fifteen year rates are around five and a half percent. Home sales are still far below year-earlier levels in many local markets, but economists agree that the recent changes by Fannie Mae and Freddie Mac to ease down payments and other underwriting restrictions have the potential to stimulate sales in the next several months.
Already, there are scattered reports of unexpected sales increases in some markets that had been almost moribund for months. Dr. Lawrence Yun, chief economist for the National Association of Realtors, pointed to San Diego, California and Fort Myers, Florida as two local markets that had been in the sales doldrums, but now with lower prices, are racking up sales gains. "Lower pricing and low interest rates," said Dr. Yun in a recent commentary, "are starting to generate results." That's the equation that could move us past the down cycle … very possibly starting sometime in the second half of this year.
So, there's reason to be optimistic that the worst is over, or at least that we've bottomed out and may be ready to start back towards a more normal market. In my little corner of the world the five markets that I track on a weekly basis - Milford, Highland Commerce, White Lake and West Bloomfield Townships - also seem to be picking up a bit. I've noticed that the number of houses that are for sale is up in most of those market (which is normal for the summer selling season), but the Days-On-Market to sell is going down a bit. That means that homes are selling quicker. Some of that is obviously driven by foreclosures, which still make up 40-50% of the sales every week, but I've also noticed that quite s few of the more expensive homes (above $300,000) have sold recently. I have several active buyers, with whom I'm working to look for new homes; and, I'm getting increased activity on my listings. Both are good signs that things are picking up in real estate. I certainly hope that this trend is sustainable and not just a "summer bounce."
Now if we could only get some good news from the local auto companies…