Consumer prices on goods, food, and fuel are increasing. Consumer confidence, manufacturing, and housing are decreasing. Unemployment is nearing levels seen in the past two economic recessions and investors have soured on mortgage-backed bond securities (decreases credit availability). Corporate earnings continue to be dismal as a result of a slowing economy and losses associated with poor mortgage investments. Inflation is on the rise as a result of the 2.25% decrease in the Fed’s short term interest rates and mortgage rates are rising. The formal definition of a recession is two consecutive quarters of GDP decline. We are not in a recession by definition. Some economists keep telling themselves this, however, if we are not formally in a recession we are definitely headed that direction. The Fed is likely to continue cutting the short term interest rates and inflation should continue to rise. Even though, the current rate cuts and the President’s economic stimulus package have not had time to fully take effect, we do not see either of these resulting in a significant increase in consumer spending and a possible economic turn for the better. In real terms any tax rebate given to those who qualify will be used to simply make it another few months paying $4.00+/gallon of milk and $3.00/gallon of gas. This Thursday we will get further direction from initial jobless claims, payroll, and hourly earnings reports.
In some areas of the country housing has lost 30% of its value. What the media omits is a lot of these markets such as Los Angeles, CA, have gained as much as 100% in value since 2002. Once the economy recovers and inventory is reduced, we believe that housing will recover and better than moderate gains will again return to some of these markets. Patience will be required.
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Stay tuned and stay in touch with your mortgage professional. Thank you for the opportunity to serve you and your clients. David. 919.851.0999.