Order an ice cream cone and a double dip is really a
treat. In a recovering economy, it is a constant threat. As optimistic as
Fed Chairman Greenspan sounded in his recent appearance before Congress,
he was also cautious about whether the first quarter’s growth rate can
be sustained.
It is not expected that the second and third quarters
will be as strong as the beginning of the new year. There are a few
reasons for this:
• Much of the growth in the first quarter was a
"bounce back" from the devastating shock of September 11,
as well as a period when many companies were
rebuilding inventories.
• If consumer confidence does not continue to build,
inventory levels will not continue to grow. The 0.2% increase in retail
sales last month was moderate at best and consumer sentiment decreased
slightly.
• Unemployment levels are expected to remain high for
the next few quarters, which will also keep a lid on the growth in
consumer confidence.
• The conflict in the Middle East provides an
everyday reminder of September 11 for most Americans. A world in turmoil
is evident every time citizens fly or go to the gas pump. That being said,
we still believe that there are many factors lining up on the side of
growth for the coming year. The government is spending us back to deficits
and interest rates will remain low as long as the economy recovers slowly
and inflation stays in check. Any type of stock market recovery this year
will provide an additional lift for the economy. A strong market will
provide an additional reason for consumers to continue opening their
wallets.
Housing Boom To Continue?
One may think that this decade could not finish as
strongly as it began in the housing sector. Believe it or not, some
researchers and experts believe that the best is yet to come and that real
estate will continue to shine for many years.
Prices to Escalate?
The Research Institute of Housing America, an
independent research organization associated with the Mortgage Bankers
Association of America, recently released a study - Homeownership in the
Immigrant Population. This study documents immigration trends of the 1980s
and 1990s and the effect these trends are having on the housing market.
Immigration has surged in the past two decades, with
the annual influx of legal entrants more than doubling in the 1990s
compared with the 1970s. The composition of immigration has also changed,
with nearly half of all foreign born households estimated to come from
Latin America and almost one third from Asia in the 1990s.
The work finds that there is a large gap in
homeownership rates between immigrants and similar native born households.
However, the gap closes over time. This will result in a significant boost
to housing and mortgage demand over the next two decades.
"The study clearly points out that foreign born
households will have an important influence in many housing and mortgage
markets in the coming years as they are assimilated into
homeownership," said Douglas Duncan,
MBA Chief Economist.
Meanwhile, several economic experts are confirming that
this decade will be stronger than the last ten years of strong housing
growth. Fueled by aging baby boomers, their children, and the growth in
information technology; the experts at Fannie Mae, Freddie Mac, the AARP,
and Harvard University’s Joint Center for Housing are predicting that
there will be pricing growth that exceeds inflation for several years to
come.
There is strong housing demand and a relatively muted
supply. Increasing concerns about the environment and sprawl make it more
difficult to expand that supply and will push up prices more strongly than
in the last decade," said David Berson, vice president and chief
economist with Fannie Mae. "Inflation will be about 2.5 to 3.0
percent a year and home price gains will average 5 to 6 percent annually.
Historically, home prices have increased only a point or two above
inflation."
Submitted by Debbie Jones