Growth Slows But Consumer Spending Up
Interest rates remained basically unchanged this week—good economic news dampened recession hopes in the bond market and long-terms rates are the same. GDP growth was the slowest in four years, but consumer spending was up. The hope in the bond market is for housing to pull the economy down—housing has slowed, but it hasn’t crashed.
The fate of home prices is not based upon one, single national market. Multiple forces are in play—how much damage has been done, how much will be done and what effect mortgage defaults will have on the market.
Housing prices on the national average are flat—prices are falling in several micro markets, but for the most part, those zones are the ones that enjoyed the greatest gains. Housing went flat over a year ago and the Fed numbers show that equity-extraction dropped sharply back then.
How bad will housing get? History says the market has a few years left in the flat zone following price drops in the past year.
The news getting the most press continues to be the effect of mortgage defaults. The reality is most mortgage underwriting has reversed to stricter standards and new applications remain steady. Lenders and borrowers are adapting to new standards with resourceful options, including co-signors, gifts, lower expectations and a return to government loans.