Discussion about the current economic and market conditions seems to be the highlight of any conversation today. Whether you are listening to the radio, watching the news, reading the latest business news in the paper or talking with a co-worker in the office, everyone is talking about the economy and the real estate market.
Key Indicators to Watch
There are several key economic indicators to follow in the market: Gross Domestic Product (GDP), unemployment, wages, retail sales, Consumer Price Index (CPI) and Consumer Confidence, just to name a few. Each is an indicator of the economy, market conditions as well as possible predictors of what may be ahead.
GDP carries significant weight since it serves as a "health check" for the overall economy. GDP is a measure of all goods and services in the country. The growth of GDP in the fourth quarter 2007 was only 0.6 percent. But the good news is the market is still growing. It might be small, but it is growth. In the year 2007, the annualized growth was 2.2 percent, as compared to 2.9 percent in 2006.
The bad news: about 70 percent of GDP is consumer spending. Although the market remains steady at a 5 percent unemployment rate and increased wages from 2006 to 2007, the national retail sales data has been lackluster.
The Commerce Department reported retail sales decreased by 0.4 percent in December 2007. The biggest declines occurred in building materials and supplies along with clothing and sporting goods.
Consumer Confidence on the Decline
Another important indicator followed by the market is the CPI. CPI acts as a barometer for inflation (or the costs of goods and services). It has continued to increase. The Bureau of Labor Statistics reported CPI increased 4.1 percent in December 2007 over December 2006.
The most volatile components of CPI are energy and food. As a key indicator for the Federal Reserve, they often carefully watch core CPI which removes the energy and food measures of the index. The December report indicated a percentage change over the last 12 months of 2.4 percent, slightly better than 2006. Overall, energy costs rose over 17 percent in 2007.
Consumer perception is another gauge for the market. Consumer confidence declined in December. More people believe that the market is deteriorating.
What's Happening in TREND's Counties?
As 30-year-fixed rate mortgages continue to decrease, and the credit crunch places strain on the market, we will continue to see a slowing real estate market. As an indicator of market conditions in real estate, pending home sales around the country have continued to decrease. TREND has seen a 27 percent decrease in pending home sales last year as compared to 2006.
Existing home sales have also decreased. The northeast has seen a decrease of about 4.1 percent. TREND's counties have experienced a decline of 10.8 percent. At the same time, inventory has increased by 5.1 percent. Current inventory stands at about 10 months of supply. Home sale averages are moderate at 1.4 percent. Some areas are experiencing slight negative declines.
Conclusions
Overall, the market has moderated significantly over previous years of prosperity. The current conditions in the market are very modest. Most likely, they will remain modest and continue to drop slightly. Activities in the market continue to work to ward off a recession. The legislature is evaluating a stimulus package and the Federal Reserve monitors the market to consider lowering key interest rates.
TREND remains hopeful that we will not experience a recession. However, the Federal Reserve and other market economists continue to report, a recession might be inevitable.
Wendy Tilton, MS, PhD, serves as the director of training and support for TREND. She brings a vast amount of knowledge from the real estate and education fields. She began her career in 1986 as a licensed salesperson moving through various facets of the industry, such as owning and operating a full-service licensed real estate company, while completing her associates, bachelors, masters and doctorate degrees. In recent years, she has used that experience and her education to focus on real estate consulting. Currently, she also serves as an adjunct associate faculty member at New York University Real Estate Institute. Over the last 10 years, she has written courses, reviewed curriculum and taught continuing education, licensing, undergraduate, graduate, and professional development courses, as well as authored and edited several articles and books.