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National Economic Outlook (May 28, 2010)

June 4, 2010 by Marco Santarelli

The two large questions on the minds of real estate investors are: when will the economy recover? and when is a good time to reinvest in the housing market? We think the economy has reached the point where aggressive investors can find good opportunities in selected housing markets. Although the national economy will just be creeping along for another couple of years and home prices will be weak, some local markets have enough long-term potential to warrant taking investment chances.

The latest bad news for the housing market is that the fall in home prices in the last four quarters was worse than expected, showing weak demand for housing and competition for real estate rentals from vacant properties. Overall, home prices fell almost 7 percent, whereas the fall for the four quarters of 2009 was 5 percent. Although the biggest drops were in Florida, California and other markets out West, the effect was felt across the country. The good news is that rental vacancy rates seem to have stabilized most everywhere, and are falling in large markets like Atlanta, Chicago and Miami. On balance, we seem to be looking at a housing situation where the downside in some local markets has become quite small.

Even though the economy grew at a 3 percent rate in the first quarter, the job situation has not improved very much, indicating a much longer recovery period. Over a million jobs were lost in the last 12 months, many in construction and manufacturing. We expect job gains during the next year, but in lower-paying areas such as retail trade and health care. And the number of temporary workers will continue to grow.

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Filed Under: Economy, Housing Market, Real Estate Investing Tagged With: Housing Market, Investment Property, national economy, Real Estate Investing, real estate rentals, rental vacancy rates

National Economic Outlook

May 12, 2010 by Marco Santarelli

Even though the economy remains weak and the housing market, in particular, is still years from recovery, some news suggests that stronger growth can be expected as the year progresses.

Technically, the economy already grew sharply in the fourth quarter of 2009, and industrial production rebounded 5 percent since hitting bottom last June, but such technical measures are meaningless unless accompanied by job growth and consumer spending.

The job situation is mixed. Overall, there are 3 percent fewer jobs in the economy than there were last year at this time. But new job losses slowed to just a trickle in the last few months, and there was improvement in such critical areas as retail trade and business help. Manufacturing jobs are down 8 percent in the last year, despite the improvement in industrial production. In government, an increase in jobs at the federal level was more then offset by reductions at the state and local levels. In health care, the only reliable job-creating sector during this recession, growth has slowed to a crawl.

The most encouraging news is that consumer credit continues to fall. The economy cannot recover until consumers have reduced their level of short-term debt, that is, credit card and automobile debt. The recession happened because consumers maxed out their credit and had to stop spending, and recovery won't happen until credit has been reduced to a level where spending can resume. So far, the adjustment has been about 8 percent.

Although the rest of the economy will recover steadily over the next year, the housing market will lag behind because of the large remaining inventory of excess homes. The current level of construction is about half a million new homes per year, down sharply from the 2 million level that prevailed for years. But even at this reduced level, the absorption of the past excess will take several more years.

Filed Under: Housing Market, Real Estate Investing Tagged With: Housing Market, Investment Property, national economy, Real Estate Investing

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