Local Real Estate and our Economic Recovery

02 Apr
April 2, 2010

Are we having an economic recovery? How about a recovery in Residential Real Estate?

The great debate among economists and TV commentators is what kind of recovery it will be. Typically recoveries look like a “V” when Gross Domestic Product (GDP) is tracked. Because of the high unemployment rate, many are saying we will not have a “V” recovery, but more of a slow and gradual rise. But don’t be fooled. Indicators for employment can be the last thing to pick up. It is considered a lagging indicator because employers do not start hiring until they are secure that they have growing demand for their product and a growing cash flow to pay for additional employees.

Let’s look at the evidence: Consumer spending is growing. This has a multiplier effect throughout the economy as each sale creates sales throughout the supply chain. Business investment is rising, at a whopping 18% annual rate. So the people who currently have jobs, just like the business owner, start to feel more secure and start to take more risk (buying things).

New unemployment claims are falling which reinforces what I have written above. So we are having a recovery, how about a recovery in real estate? Let’s go back to the 93-94% of the people in the DC Metro area that have jobs (the unemployment rate here is under 7%). If they do not own a house, they are prospects to be in the market to buy a house under today’s favorable conditions, low prices and low interest rates. If they own a house that was bought before 2005 or they made a large down payment when they bought, they are candidates to sell their house and buy a larger one. The people who are not in the market to buy are those who bought from 2005 through 2007. But normally people who have only owned their home for only three to five years are not selling anyway. The average is about seven years.

Steve Murray of Real Trends has consistently reported that about 5% of the population moves each year. During the boom that number swelled way above the 5% norm. So as the economic recovery continues, it will spillover into the Real Estate market here in the DC Metro area. Already those who had the courage to buy since December 2008, when prices bottomed, have been rewarded with increased equity both from mortgage principle pay down as well as some price appreciation.

So are we having a Real Estate recovery? The evidence says we have already started or are about to start. So buckle up your seat belt and get ready for the ride!

Commentary provided by David Hess, Executive Vice President.

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