The Economic Picture

Well, there was some good economic news today (1/30/08). The Federal Reserve, as you may know, reduced the short-term interest rates for the second time in 8 days. Last Tuesday (1/22/08) the Fed reduced the fed funds rate 75 basis points (or ¾ of one percent). That was the largest cut the Fed made in more than the last 23 years. Today, the Fed reduced the fed funds rate again by 50 basis points (or ½ of one percent). This is the most aggressive effort the Fed has made in a very long time to prevent a recession. You might remember that after the terrorist attacks on 9/11/01 the Fed cut the overnight lending rate by only 50 basis points. The bottom line is that borrowing (including mortgages) will be cheaper and interest rates are at historic lows. That helps us a lot!


Last week the stock market reacted very favorably to the rate cut and the consensus was that such cuts were necessary and would, at least to some degree, help keep the country from sliding into recession. Since then, bad economic news has continued to come in on the national level. This includes news about weaker consumer confidence, weaker consumer spending, rising housing inventories and falling housing prices. Today the Commerce Department announced that the nation’s growth slowed substantially in the fourth quarter of 2007 to an annual rate of just 0.6 percent from 4.9 percent in the third quarter. In light of all this news, the Fed apparently felt it necessary to reduce rates again, hence today’s announcement. These actions by the Fed dovetailed with continuing efforts by Congress and the White House to pass a fiscal stimulus bill that would inject at least $146 billion into the economy. Everyone in Washington agrees that it is important to have a stimulus package; however, they differ on the details and that’s what has to be worked out prior to it becoming a reality. The good news is that it will happen and probably pretty soon. While these measures don’t guarantee that we won’t go into a recession, they go a long way in helping to prevent one or, at least, make it a mild and hopefully short one.


Recent legislation such as the FHA Modernization Act of 2007, which passed the U.S. Senate, and legislation being considered on the state level in reaction to the sub-prime debacle will greatly help in restoring consumer confidence in our real estate market.


As I mentioned at the Award’s Dinner last week, NAR’s Chief Economist Lawrence Yun, contends that home sales will begin to rise in the 3rd or 4th quarter of 2008. Other economists tend to agree. While such estimates may change depending on future economic news, this is positive and indicates that the real estate market is stabilizing at this time.


In the meantime, we await further developments and go forward. I hope this information assists each of you and I hope you’ll share some of this information with your clients and customers, if the occasion arises. They need to hear from you and be encouraged at times like this. Because you are their real estate expert, what you say has meaning to them - even if they don’t tell you so!


To your success…


-Ross