December 3rd 2008 - Weekly Real Estate Market & Economy Commentary

December 3rd 2008 - Weekly Commentary

Thumbnail Sketch: John Templeton once suggested that the time to buy investments was at the highest point of pessimism. Have we reached that yet? It’s hard to say, but we continue to see signs that we’re starting to crawl out of the economic black hole - in spite of the massive number of analysts who assert the opposite in our daily newspapers, radio and television reports.

The economic indicators, most of them backward-looking, continue to undergird the widespread gloom. Construction spending declined 1.2% from September to October, 4.6% year-over-year. And sales of new homes dropped heavily—by 5.3%--from September to October, providing little hope for a sustainable improvement.

If we look beneath the numbers, though, we see that there are changes afoot. For example, “the Fed's new programs designed to improve the flow and terms of credit to homebuyers and consumers has had the immediate effect of dropping mortgage rates by an amount that will translate into significant improvement in affordability. Barring further intensification of economic and financial problems, declines in house prices and mortgage rates could buoy demand and lead to stabilization in sales by early next year.” [Aaron Smith, Moody’s Economy.com]

In other words, while highly visible leaders run around decrying the end of the economic world, some programs are being put into place—by the Fed, by Fannie and Freddie, by other major lenders—that should reduce the number of foreclosures and increase the sales of properties, as affordability jumps. Further, though the Treasury interest rate drops haven’t fully penetrated mortgage rates, they are bound to keep mortgage rates attractive. (Treasury rates drop when investors over the world use the securities as a safe harbor for their wealth in particularly uncertain times—as is the case presently.)

And have you filled your gas tank lately? This is a double-edged sword, of course. The hard edge is the fact that gasoline costs so much less because weaker economies mean far less demand for gasoline (though it is difficult to lament the burning of less oil). The softer edge is that consumers in most areas are paying less than half of what they paid when gas prices soared. And that has to bode well for people’s budgets.

Lastly, the jury is still out, but early reports suggest that the heavily-discounted retail sales over the Thanksgiving weekend pulled in a lot of money. And all of the above should provide us some cheer as we roll into the holiday season.

Buying real estate right now is a good idea. If we're not at bottom, we sure are close.