Survey: Economy Improving, Housing Lags
Business is picking up steam after nearly one year of economic recovery, says a forecast released Monday by the National Association for Business Economics.
The survey concluded that:
* Unemployment will fall to 9.4 percent by year’s end and shrink to 8.5 percent by the end of 2011.
* Inflation is expected to remain low for the next year or two, but climb within five years.
* Real domestic product is expected to rise 3.1 percent in 2010 and go up another 3.2 percent in 2011.
* Based on the decline in applications for permits to build new homes, analysts expect housing to remain a weak point.
Source: Associated Press, Dave Carpenter (05/24/2010)
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Commercial real estate gets worse
The commercial real estate downturn is deepening, threatening to slow the economic recovery.
To try to contain the damage, the Federal Reserve said Monday that it will extend into 2010 a program to help investors buy commercial property loans. But some say that will have limited impact.
“We seem to be nearing the end of the recession but the situation in the commercial real estate market is getting worse,” says Patrick Newport, an analyst at IHS Global Insight.
About $83 billion of office, retail, industrial and apartment properties have fallen into default, foreclosure or bankruptcy this year, says research firm Real Capital Analytics. The default rate for commercial mortgages jumped from 1.62% to 2.25% in the first quarter and should hit 4.1% by the end of the year, says Sam Chandan, president of Real Estate Econometrics. The carnage will likely cut half a percentage point off economic growth this year and in 2010, Newport says.
Fueled by easy credit, developers built too many shopping malls and office buildings from 2004 to 2007. As the economy soured, vacancy rates rose. Property values are down about 40% from their 2007 peak, Deutsch Bank says, and loans for commercial properties have come to a virtual standstill.
By Paul Davidson, USA TODAY
Full story…
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Are Today’s Homes Undervalued?
An over-correction on prices will delay economic recovery.
After dropping for three years, home prices appear to be stabilizing. The median national home price today is about $169,000, down almost 14 percent from a year ago and an estimated 30 percent from its peak. It’s safe to say we’ve reached the point where prices are justified by the fundamentals of the economy and may even represent an undervaluation.
Foreclosures and short sales comprise about 50 percent of transactions today, creating market distortions in otherwise stable neighborhoods. In determining valuations, we’re capturing only transaction prices, and prices of those properties might be 20 percent below values of other homes.
For that reason, it’s possible that widely cited projections that a third or more of home owners are underwater might be off the mark. The consequences of these missed projections are significant. Lenders are shying away from refinancing mortgages of otherwise creditworthy households on the basis that their homes are underwater. By not making these loans, lenders are exacerbating the financial hardship faced by these households.
Yet there are encouraging signs on the horizon. The First-Time Home Buyer Tax Credit, which Congress improved two months ago by eliminating the repayment requirement and increasing the benefit to $8,000, is working. That credit, coupled with all-time-high housing affordability and continuing low interest rates, is leading to solid inventory improvements in most markets. Yet when we look only at homes in high-cost areas requiring jumbo loans, the months’ supply is in the stratosphere: almost 45.
What’s clear is that the challenge today is getting credit moving again for everyone. Until then, markets will continue to be distorted by the disproportionate number of short-sale and foreclosed homes for sale.
Lawrence Yun is chief economist of the NATIONAL ASSOCIATION OF REALTORS®.
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Top Economists Say Recovery Has Begun!
Economic recovery is about making people feel more confident, says Mark Zandi, chief economist of Moody’s Economy.com.
Zandi evidenced increasing home sales and gains in the stock market are some promising signs that the worst is over and people will start spending again.
“We’re starting to see some pent-up demand for goods,” he says.
But Zandi warns that the situation is still fragile. “Confidence is a very fickle thing. It can go from abject pessimism that pervades now to a more balanced view of the world rather quickly.”
Robert Brusca of FAO Economics is predicting strong growth in the last half of the year and a quick recovery for the labor market. “You’ve lost 5 million jobs. It shouldn’t be hard to put 2.5 million jobs back on rather quickly after you hit bottom,” he said.
Joseph Carson, chief economist at AllianceBernstein, calls improving home sales, a rising stock market, and better-than-expected retail sales in February and March good signs of a turnaround. By the time President Obama’s stimulus package takes effect, the economy will be ready, he says.
“The stimulus has a much better chance of working if trends are already turning up than if it needs to halt a decline,” he said.
Source: CNNMoney, Chris Isidore (04/06/2009)
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