Fed: Economy Improving, Commercial Still Weak
The U.S. economy has “improved modestly” since early October, the Federal Reserve said Wednesday in releasing its monthly “beige book” survey of regional economic conditions.
The Fed said residential real estate sales increased everywhere but the Northeast. Also, fewer homes overall were being built.
The report also said commercial real estate was worse than the residential market, with conditions reported to have weakened in virtually all districts, with “rising vacancy rates, downward pressure on rents, and little, if any, new development.”
Overall, the Fed reported that the labor market remained weak in most areas, but it noted improvement in some areas and an uptick in retail sales.
Source: The Wall Street Journal, Sudeep Reddy (12/03/2009)
Affordability is Key.
The U.S. economy has entered a recession and will contract for the next three quarters. The recovery, beginning in the second half of 2009, will be tepid. The unemployment rate will peak at 6.7 percent by mid next year before steadily heading down.
Despite these challenging economic times, existing home sales will be rising. Why? The answer, in a word: affordability. Currently, the most important factor driving home sales is affordability. With home prices falling in many parts of the country and mortgage rates still near historic lows, affordability conditions have markedly improved. Even with rising unemployment, nearly 93 percent of households will have jobs. These 93 percent of the working households (rather than 95 percent during good economic times) respond to home buying incentives. Measures such as the recently enacted first-time homebuyer tax credit and a larger number of mortgage loans that qualify for purchase by Fannie Mae and Freddie Mac and through the FHA program will further bring homebuyers to the marketplace.
I say this because we have history as a lesson. Back in the prior recession (2001-2003) the economy shed nearly 2 million net jobs. Even during those years, existing-home sales rose from 5.2 million to 6.2 million just as jobs were being cut. New home sales, likewise rose from 900,000 to 1.1 million. Mortgage rates were falling. Housing affordability increased. While those 2 million job cuts were painful, the economy still had 130 million job holders. And given the right incentives, they purchased homes. Full details
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