Caruso’s Economic Update!


The first set of earnings released in January focused upon the financial sector.  In all, the reports by larger national and regional banks were disappointing and showed that we are not out of the woods with regard to the legacy of bad loans piled up on the asset sheets of banks during the recession. While the economy recovers, debt loads of banks and nations will prove to be a drag on growth.  This is why analysts are looking at the good economic releases we have experienced in the past few months and are still remaining cautious.  For the consumer, this situation actually represents good news.  A recovery that does not get too strong too fast will continue to translate into record low interest rates for a longer period of time. If it were not for Europe or the banks right now, the sale on our nation’s real estate would be over much more quickly.  On the other hand, looser credit standards will not come until banks dig out from their credit morass.  We are not likely to have looser credit standards and record low rates at the same time as the two just don’t go hand-in-hand.

Home affordability is at 1971 levels, due to falling home prices and record low rates, pushing home ownership in reach to many more families, according to the U.S. Department of Housing and Urban Development (HUD).  Home owners are bringing in nearly double the median income they need to cover the cost of an average home, Housing Predictor reports. “With rates at historically low levels and markets across the country beginning to improve, home ownership is within reach of more households,” Bob Nielsen, chairman of the National Association of Home Builders, said in a statement.  Home sales have been ticking up, according to recent reports by the National Association of Realtors® and the National Association of Home Builders, Source: Housing Predictor

The apartment vacancy rate is at its lowest level since late 2001 as the rental market continues to soar, according to the latest fourth-quarter data by Reis Inc.  As demand increases, the vacancy rate for apartments dropped in the fourth quarter to 5.2 percent compared to 6.6 percent a year prior. Meanwhile, as the rental market takes off, builders are rushing to play catch up in building new units to meet the demand.  In 2011, Zelman & Associates estimates that more than 173,000 units were started, and about 225,000 and 280,000 starts are expected in 2012 and 2013. Source: The Wall Street Journal

Borrowers who have a history of paying rent on time may see a boost to their credit score.  Experian, a leading credit report company, added a section to its credit reports last year that reflected on-time rent payments, which helped give a boost in the credit scores to some on-time rent payers.  Now the two other major credit reporting companies are following suit.  CoreLogic and FICO recently announced they are also adding a score that reflects payment histories from landlords, The New York Times reports.

No discussion of the prospects for our economy in 2012 would be complete without an examination of the housing sector. As daunting as the debt crisis in Europe is, there is no doubt that the real “x” factor is housing.  This topic is so complex that it is hard to sort out.  For example, we know that the housing sector will not rebound without employment strengthening.  But we also know that the housing sector is very important in creating employment. If that sounds like a catch-22, it is.  And it is one of the main reasons our recovery has been tepid up to now.  We also believe that it is no coincidence that the housing market seems to be improving now that the employment sector is also getting stronger.  Of course, we will know more about how strong the employment sector is in a few days because Friday we will see the release of January’s employment report.

Regardless of the results of this report, we do know employment growth was stronger in 2011 — especially towards the end of the year. In January first time unemployment claims fell to their lowest levels since April of 2008.  We also know that existing home sales and starts for single family homes also have increased in the last quarter of 2011.  Again, no coincidence.  The National Association of Home Builders has indicated that every single family home built creates three jobs.  To put it another way, just over 425,000 single family homes were built last year. That is over one million jobs.  Sound impressive? It is still a few million jobs less than the sector produced during the real estate boom years.  An increase of 100,000 houses this year would create 300,000 additional jobs and that does not include the apartment sector which is starting to boom and the commercial sector which has yet to awaken from its slumber.  Conceivably, we could see close to 500,000 additional jobs created this year with modest growth in building.  Even more importantly, those jobs create even more demand for housing.  Will this happen?

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

Best regards,


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


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