Many real estate experts are predicting that the housing market will continue to muddle along throughout 2011. The reasons for this are the same ones that have kept the industry in the doldrums since the housing bubble burst. These include far too many foreclosed homes on the market and a glut of unsold inventory, slow job growth despite unchecked government spending (a federal deficit of about $1.5 trillion being forecast for 2011 alone-that’s trillion with a “T”), and low consumer confidence.
Another event could come into play about mid-year which could cause real estate sales to increase. In June of 2011 the Federal Reserve’s program of purchasing $600 billion of government bonds is currently scheduled to end. It is possible this program could be extended, but there would be opposition to that from several quarters.
The intention of this program is to lower interest rates and encourage business activity and hiring. It has probably done some of this, but of course if you’re going to spend $600 billion, you should expect at least something to come of it. But ever since this program was initiated it hasn’t made too much of a dent in the overall employment picture. It has no doubt helped the stock market rally, but those who benefit from that are not the people who cannot find work.
This $600 billion bond purchase program is not without its critics. Even a couple of voting members on the Federal Reserve board have expressed concerns that it could cause inflation in the future and encourage speculative buying in assets like stocks. If they are right we could be headed for another stock market bubble. In any case if some Fed leaders want to try and extend this program past June and throw even more money at the problem, they may not be able to succeed.
Let’s get back to the housing market. If the $600 Fed bond purchasing program is terminated on schedule, long term interest rates will likely increase. This would seem to be an understatement, since they are going up already even though the government is doing all it can to keep them as low as possible. Long term interest rates include home mortgages, so potential home buyers might be faced with seeing the lowest interest rates in a generation disappear. If rates go up a per cent or two, potential buyers might jump in to avoid missing out on this historic opportunity. Stay tuned.
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Filed under: Real Estate
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