Real Estate Outlook: The Federal Reserve

What should we make of the latest reports on rising home sales and the Federal Reserve's promise to keep interest rates low indefinitely?

Should we worry that at least some of the sales are being pushed forward by the expiring tax credits? Though that may be the case, take a minute and join the economists at the Fed to see the bigger picture. What's going on in the economy nationwide?

In its "open markets committee" statement issued last week, the Fed pointed to the underlying positives: Overall national "economic activity continues to strengthen," it said, and "the labor market is beginning to improve." Of course there are challenges to keeping the rebound rolling along, but the direction for the year as a whole is good.

The Fed's statement provides useful context for some of the encouraging numbers being racked up in the housing market. For example:

The Commerce Department reported last week that new home sales in March were up by 27 percent -- hitting their highest levels since July of 2009. Even the median sale price was up by 4.3 percent compared with the same month the year before.

Home resales in some major markets were up impressively as well, such as in Chicago, where sales jumped by 50 percent last month over the year before, and were 48 percent higher than they were in February. Florida sales were 37 percent higher in March than February and were up by 24 percent compared with the year before. Las Vegas saw its highest sales totals in four years.

Not surprisingly, applications for new mortgages to purchase homes have been rising strongly as well. The Mortgage Bankers Association reported a 12 percent surge in purchase applications for the latest week. No question the expiring tax credits requiring signed contracts by April 30 played a role in that number.

Meanwhile, the National Association of Business Economics, a group that represents corporate and government economists, just came out with an upbeat forecast as well. Three-quarters of the economists surveyed expect growth in the national gross domestic product (GDP) of two percent or higher through the balance of the year.

Twenty two percent of the private companies polled reported their payrolls and employee numbers increased in March, up significantly from the month before.

So the bottom line to keep in mind about the latest statistics and projections is this: The underlying economic factors, growth in jobs, growth in output, rising consumer expenditures and confidence, are the critical numbers to watch for future housing activity.

And at the moment, the consensus is that they look pretty promising.

Published on Realty Times
Written by Kenneth R. Harney
May 3, 2010

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