Orlando Real Estate

The Fed and The Economy

August 21st, 2009 5:18 PM by David W. Welch

The quote I found on Yahoo Financial news from the Fed Chairman was "the prospects for a return to growth in the near term appear good." That is all it took for the stock market and oil prices to shoot up. What does this mean for the real estate market? Here is my take on the Chairman's comment, where we stand economically and what impact this has on the real estate market overall. First, I always like to say that real estate is local, and if your local economy has not picked up yet you may not see these trends so much in your area. If your particular local economy has already begun to turn around you may be ahead of the curve. Overall though the country appears to be exiting the recession that we have been mired in for quite some time now.

A few things to be aware of as things begin to turnaround. First time homebuyers should not count on the government extending the $8,000 tax credit. There is already a lot of concern that the stimulus and deficit spending that was so popular just a few months ago, may be creating too much debt. With the economy beginning to improve there is less incentive to continue the tax credit. Add to that the growing deficit concerns, and I would bet against another extension of this program. The Fed Chairman recently also announced that the Fed will end it's purchases of Treasuries a month early, but would continue it's purchase of mortgage backed securities throught the end of the year as planned. Bernanke also speculated that lending will remain tight through at least part of 2010. The Fed's purchases of of Tresuries and mortgage backed securities helps create a fluid market for those debt instruments. If there is a market for them then the interest rates are pressured down. When the Fed stops making these purchases they must stand on their own in the market. The demand will be less without the Fed as a buyer which means they will have to offer a greater return which equals higher interest rates. Overall look for higher rates and tighter lending requirements as these programs come to an end. Finally, the comment today about "a return to growth in the near term" means the economy is expected to start growing again. In a recession the economy actually shrinks. That means fewer goods and services are sold which leads to job loss. As the economy begins to grow, more goods and services will be demanded eventually leading to job growth. Job growth is key to increasing home sales and inflation.

The impacts on housing and the real estate market are: an end to the tax incentive, higher interest rates by year's end, increasing home sales. All of these mean that buyers who continue to sit on the fence will almost certainly face a higher cost of ownership than those who act now. Buy before the November 30th deadline, and you may qualify for up to $8,000 free money from Uncle Sam. Buy before the end of the year, and you may be able to take advantage of interest rates in the 5's. After January these rates could easily jump into the 6's. Buy before the first half of 2010 before the competition becomes greater as consumer confidence rises with employment numbers. Buy now while we still have a buyer's market. Orlando has stabilized and is quickly moving toward a balanced market.

Orlando Real Estate, David Welch Real Estate Optimist

Posted in:General
Posted by David W. Welch on August 21st, 2009 5:18 PM


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