Caruso’s 5 Factors to Heal the Housing Market….

While reading various articles I came across an article about 5 factors that may heal the housing market. They say it takes little logic to conclude that the Home buyer Tax Credit incentive is borrowing buyers from the future. Many of these buyers would have been in a position to purchase in the months ahead, given continued low interest rates and buyer-friendly home prices; this is reflected in recent home sales and mortgage application reports. For this to reverse five things need to happen:

  • 1. Interest rate must remain low.
  • 2. Private-sector wages will need to rise, enabling the current employed to better qualify for mortgages.
  • 3. New jobs must to be created in the private-sector to bring new households into the home buying ranks.
  • 4. The consumer savings needs to increase thus creating the down payment and closing costs for home purchases.
  • 5. Consumer Spending must increase.

Recovery of the housing industry and the greater economy is dependent on job and wage growth in the private sector. To date the economic recovery efforts have been spent on public spending projects and government employment. They have not stimulated creation of non-government jobs as most businesses are cautiously on a hiring hold. Currently, around 10 million people are claiming unemployment benefits.

David Semmens of Standard Chartered Bank voices two major concerns:

1) this is still very early stages and given hours worked are currently very low any uptick helps lift personal income, despite poor hiring numbers;

2) the data is currently being lifted by the census hiring so the data in coming months (4-5) will shed far more light as I would expect it to be weak as the census jobs are lost.

The labor market appears to be gradually healing. Omar Sharif of RBS states, “With the labor market gradually healing, wages have shown some momentum this year, with the three-month annualized rate hitting 5.3% In May, the fastest pace of advance since November 2007.”

May’s Personal Income indicator show that Personal Income ROSE by 4.0%, Wages and Salaries ROSE by 0.5% and Consumer Spending ROSE by 0.2% and is now 4.6% ABOVE its year ago level but has decelerated over the past 3 and 6 months and finally, The Savings Rate ROSE to 4.0%.

Steve Wood of Insight Economics concludes: “The growing economy, which is now creating private sector jobs with a lengthening workweek, combined with ongoing monetary and fiscal stimulus, has strengthened growth in personal income and wages and salaries. Although still soft, they are much stronger than they were just 6 months ago.”

So, it appears that the US economy is modestly advancing on all five points. If it continues to improve it will still take time to create qualified home buying households.

And thank you for making me Your Orange County Real Estate Connection.

Best regards,

Michael Caruso, Broker ABR ABRM CRB CRS GREEN GRI

2007 President, Orange County Association of Realtors (949) 753-7900


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