The truth is, I wish I knew for sure. I guess if I could tell you that with 100% certainty, there would be a lot more people listening to me. The media is all a buzz over recent indications that the recovery is not working and we are headed to a “double-dip” recession. Here is why I think that is not happening:
- This recovery, for better or worse, is pretty much what analysts had said it was going to be – a jobless one. The same pundits that are saying the sky is falling are the same ones that said months ago that this would be a difficult and slow recovery. They also said that jobs creation would lag and make any improvements gradual and even painful.
- The home buyer tax credits artificially propped up demand. Obviously, the goal of the tax credit was to get buyers off the fence and into homes. It was also intended to get customers to buy who otherwise would not have. And just like “cash for clunkers” was with autos, there was bound to be a great fall off in purchases once the incentives ended. The real telling signs are going to be in the coming months as we see where the market settles.
- New construction is still at historic lows. One of the major issues in the market is oversupply. Given time, and a slowdown in new home inventory, prices can begin to stabilize and inventory can come into line. This may not be the best thing for the economy overall as new home construction is good for business. A big part of the crash came from an explosion in the supply of new homes and condos, so stemming that should help.
- Increases in short sales and REO’s are starting to be seen. There is a lot of property out there in foreclosure or already owned by the banks. While there is certainly more foreclosures to come, we are starting to see more and more bank owned properties hitting the market now. This means that the back log of abandoned properties will start to thin and values can start to stabilize. Much, but certainly not all, of the losses associated with these properties have already been felt by the banks and mortgage companies. Moving these properties off their books is a needed step in returning to good financial standing for these institutions.
There is no debating that we still have a long way to go. Figures for both new and existing home purchases for July were released last month and they were very poor. Numbers are at all time lows. Again, for the reasons I point out above, I think that this is just a blip on the radar and more stability will return in the coming months.
The Federal Reserve met last week at the annual retreat in Wyoming. Fed officials all pledged that they would everything in their power to keep the recovery on track. Ben Bernanke’s view was that the economy would resume stronger growth in the first part of 2011 . Again, the call was for more movement in the job market. The Fed pledged to continue buying long-term bonds to encourage growth and keep interest rates low.
Finally, I think that a case can be made that we are all just a little too pessimistic these days. These are certainly trying times we have gone through and there are more to come, but we must maintain a positive outlook. We are closer to the end at this point, yet most seem more downbeat than even at the heights of this downturn in 2007 and 2008. Rates remained steady and there are hopes they will continue to remain steady in the coming weeks and possibly months.
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