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June 15th, 2009 8:40 AM by David W. Welch
It seems more economists are getting on board with the idea that the recession is at least slowing down. Of course, the ones that think things are still going to get worse will always get more press. Let's face it bad news sells better than good news. The fact is that the recession is not going to last forever, and the economy will begin to improve. The liklihood that this turnaround will come this year, I believe is becoming greater with every new release of economic data. It is the intrepretation of the data that is always in question. In other words it is the old case of is the glass half full or half empty. If you are in sales, you should look at it as half full.
This is what is going to happen as the economy does turn around. People will be more confident in there jobs, and therefore more likely to spend some money. They will not only make more consumer goods purchases, but purchases of big ticket items like cars and such. Everyone that has been testing the waters in real estate will get more serious about making a purchase. Homes will start selling at a bettter rate. Here in Orlando we have already seen home sales improve significantly over last year. In May sales were more than a third higher than in May of 2008. At that pace the number of homes available for sale dropped by more than 1,000 down below 19,000. What this number does not measure is the new home inventory which is down significantly from the high a couple of years ago. New home inventory is down from more than 24,000 to around 4,000 homes. With a lag time to begin building, even more exisiting homes could be absorbed as well as builder inventory. As the inventory goes down, prices will stabilize and possibly beging going back in the other direction. This is more liklely to be seen with the new homes where builders have to make profit or it does not make sense for them to start a new house.
As spending goes up in all sectors of the economy, prices will go up too. The Fed's easy money policy will have to tighten up. This will push interest rates up to try to keep inflation from eating into the recovery. It is a balancing act for the Fed, but one that they have experience with from past recoveries. As interest rates go up the cost of ownership begins to go up too. Generally, what we have seen in the past is that people begin to buy faster when their costs are going up. There is no benefit to waiting, because it may cost you more to buy tomorrow. This actually has the effect of speeding up the sales of homes driving inventory further down and turning prices back around. This is going to happen to some degree. The questions are when and how fast. I already seeing the price decline slowing if not stopping altogether. Bank owned properties are more frequently drawing multiple offers and even selling for greater than the asking price. We have also seen the market pushing interest rates up in anticipation of inflation. Oil futures too have gone up significantly which is a sign that the market is anticipating greater economic growth and the potential for inflation.
The turnaround is coming, or maybe it is already here.
Orlando Real Estate, David Welch Real Estate Optimist, @RealtyOptimist