Housing Market Marches Forward – Economy Hangs Back

September 24, 2012 / Russell Legato, Residential Property Analyst

Why is it that when other markets are still slow, we see the Housing market outpacing economy in other areas? It is a shining star in the U.S. The remainder of the economy moves at a snail’s pace in comparison to the real estate market. New and pre-owned houses may be below the norm, but they are the most promising data in the news.

Housing Market Marches Forward – Economy Hangs Back

Manufacturing, on the other hand is at a standstill. The question is can the housing market continue its climb up in light of the slow speed of the rest of the economy in the United States.

Housing starts is the term for the new homes that are starting on construction. In June the total number was 746,000. August at final count is expected to rise to 770,000.

Housing starts increased by 21.5 percent in the last year. At the lowest point the sale of new houses totaled 306,000. That was in 2011. Now sales have grown. Oddly, the interest rates remain low. The interest on a 30-year fixed rate mortgage dropped to 3.55 percent just last week. Freddie Mac reports that it was 4.12 percent in 2011 at this time.

Last Thursday, the Federal Reserve announced its plan to purchase billions of dollars’ worth of mortgage-backed securities. Some experts expect this to pressure home rates to fall. This may not be good for the homeowners; however, it would result in more sales.

The weak job market is a major concern. The Fed wants the federal funds rate to stay close to zero till 2015. This extends beyond Ben Bernanke’s appointment. The federal funds rate has already been close to zero since 2008. The fed has been and plans to continue taking aggressive measures understood by the economic analysts. Unfortunately, growth is still not coming to pass as expected.

U.S. stocks did go up after the fed announced its purchase plan. Bernanke says this aggressive plan is intended to spur the sluggish labor market. The central bank will continue to buy in an attempt to create additional jobs and create them faster. But, the fed’s assets will run out before the labor market recovers completely. No one can predict the end result, not even the top level economists.

It is possible that the housing market will continue outpacing economy improvement for some time.

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