Another Outlook for 2007

Despite the current economic slowdown, Federal Reserve interest-rate increases, home price declines, higher oil prices, and the war in Iraq, Wells Fargo’s senior economists forecast U.S. economic growth in 2007

“The [stock] market’s recession fears are overblown and the U.S. economy will reveal incredible resilience in 2007,” said Dr. Scott Anderson, senior economist for Wells Fargo & Company, during the company’s annual economic forecast teleconference earlier this week. “The drivers that had been pulling down the U.S. consumer and economy in the first half of 2006—such as rising energy prices and interest rates, sluggish wage growth, and a sharp drop in housing demand—began to recede or stabilize in the second half of 2006.”

“The housing slowdown has been offset by strong stock market wealth, so household wealth continues to grow.”

Anderson said most of the damage in the housing market already has occurred and there are signs of recovery—mortgage purchases are up about 15 percent since the beginning of November. Existing home inventories have plateaued over the last four months, and the Wells Fargo National Association of Home Builders index has held above its September low for three consecutive months with builders reporting an improved sales outlook.



Happy Holidays to you and yours and a prosperous 2007 to all !

2007 Housing Market Predictions

New home sales will continue to fall in the first three months of 2007 while existing home sales are expected to recover, says the National Association of Realtors (NAR).

The NAR’s latest forecast says new home sales will fall 17.7 percent to 1.06 million in 2006. That’s the fourth highest total on record, according to the NAR. And sales will fall an additional 9.4 percent in 2007 to 957,000.

According to the NAR, lack of supply will be the main factor behind lower new home sales. Builders cut back on building new homes in order to maintain higher prices. Plus, high construction costs have been eating into builder’s bottom lines, forcing them to reign in building efforts.

Housing starts, which are the number of homes builders break ground on, are expected to drop 12.3 percent to 1.82 million units in 2006. Starts will then fall another 15.1 percent to 1.54 million units in 2007, says the NAR.

Existing home sales are forecast to drop by 8.6 percent to 6.47 million in 2006. That’s the third best year on record, according to the NAR. However, existing home sales are expected to recover in 2007 from the current cyclical low to sales of 6.40 million or 1 percent lower than this year’s total sales.

"By the fourth quarter of 2007, existing home sales will be 4.6 percent higher than the current quarter," says NAR chief economist David Lereah.

Though home prices have shown signs of weakness lately, the NAR says prices of existing homes will rise 1.4 percent to $222,600 in 2006 and they’ll gain another 1 percent in 2007, rising to $224,700.

New home prices, on the other hand, will be mixed. The NAR is predicting prices will ease by 0.5 percent to $239,700 in 2006, but will edge up 0.8 percent in 2007 to $241,700.

"Keep in mind that overall home prices were still appreciating at double digit rates in the first quarter of this year — prices in this buyer’s market are temporarily a little below a year ago when we were in a strong seller’s market," Lereah said. "This correction is one of the factors drawing buyers into the current market, but most sellers are still seeing very healthy long-term gains," notes Lereah.

Overall, the NAR is not expecting a repeat performance of the past three or so years.

"Roughly three-quarters of the country will experience a sluggish expansion in 2007, while other areas should continue to contract for at least part of the year," he said. "Most of the correction in home prices is behind us, but general gains in value next year will be modest by historical standards."

The housing market certainly has reached a plateau this year, and time will tell if the NAR’s predictions come true. The wild card will be interest rates and the economy. If the economy were to, for example, slip into recession, all bets are off as to how far the housing market could fall.

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We're on "Pause"

The Fed has just announced they have decided to remain in a "paused" mode and will NOT be making any changes to the Fed Funds Rate at this time. But as expected - Fed President Jeffrey Lacker still disagreed with the vote, and said another .25% hike was needed.

Because the Fed Funds Rate influences many Adjustable Rate loans, as well as being tied to the Prime Rate - the Fed's decisions can impact you greatly, especially if you are one of the millions of Americans who have an Adjustable Rate Mortgage, Home Equity Line of Credit, credit cards, or any one of the other debts impacted by the Fed Funds Rate or Prime. So for now, a continued "pause" is good news.

The Fed's main charge is to control inflation - not just for us, but for our future generations as well. And although inflation remains above the Fed's "comfort zone", they appear willing to be patient a bit longer, and see if their previous string of seventeen rate hikes will be enough to help inflation settle back down. In fact, the Fed said that it expects inflation to moderate in the coming months.