Is this the Bottom?

We have always said that no one will know when the bottom is until it is at least 3 to 6 months after the fact.  With the amount of dips and rises that we have seen lately, it can only leave you feeling like you just got off of the worlds best roller coaster.  The only thing the average person can do is just hang on and try not to puke.  Because just like on a roller coaster, most of the time that puke is going to hit you right in the face. 

This week Congress is fighting over extending the tax cuts.  Most people agree that a compromise will be reached here very soon.  Republicans feel they have the upper hand and Democrats understand that if they don’t reach a deal, then they will be wearing the blame for a long time.  This kind of situation forces the elected to get down to business and get the job done for the American people.  This is what we need even though any compromise won’t be perfect and it won’t appease everyone.  Its just too bad that things have to get so bad before they put their own ambitions aside and remember who they are working for.

Well, this week could be the turning point for our economy.  It is understood that adding almost $900 Billion more to the deficit is continuing to dig the grave, but the confidence that this should bring to the American people should be priceless.  I personally feel that the two year extension is only adding another bandage without addressing the real problem, but it will help.  If Congress really wanted to make a difference, then they would attach strings to the tax breaks.  For example, giving tax breaks to higher income business who create jobs would be an incentive’ instead of breaking taxes for everyone without any performance.  The problem with the TARP program back in 2008 was that they just bailed the banks out without any strings.  They did not keep them accountable.  And they continue to make the same mistakes.

I do see this tax compromise a very possible turning point to our economy.  Businesses have done well the last year.  There is an estimated $2 Trillion ready to be invested in jobs, company growth, etc.  The item that we need to bring it all together is going to be CONFIDENCE.  Once that is established, then look to see our economy recover in a stable way.  It will be slow to begin with, but it will start recovering.  The only problem is that people need to plan for the future of higher taxes in every category.  The rich are not the only ones that are going to bail us out.  Everyone will be effected.  The damage has already been done.

The housing market will recover slowly after the economy recovers.  Job growth is still our largest adversary to the housing market.  The estimated amount of foreclosures in the next two years, as we have pointed out numerous times, needs to be hedged by job growth.  People need to make enough money to keep their homes as well as their spending habits.  This era of confidence just may be the start of this recovery.

The Next Depression?

The experts say most recessions last an average of 18 months.  We are getting closer and closer to doubling that with this current recession.  At what point do they call it a depression?  The Great Depression of the 1930s was very deep; cutting to the core of what America prided itself on.  It sure seems like we are quite aways away from something like that, however; the Great Depression had an instant effect after the stock market crash in 1929.  Some economies started to recover in the mid 30’s, but most of the world came out of it in the late 30s to early 40s.  Some say World War II was the factor in getting us out of the Depression.

I am just wondering who decides when it is a depression.  According to Wikipedia, there is no real consensus on what a Depression is.  It explains, ‘There is no widely agreed definition for a depression, though some have been proposed. In the United States the National Bureau of Economic Research determines contractions and expansions in the business cycle, but does not declare depressions.  Generally, periods labeled depressions are marked by a substantial and sustained shortfall of the ability to purchase goods relative to the amount that could be produced using current resources and technology (potential output).  Another proposed definition of depression includes two general rules: 1) a decline in real GDP exceeding 10%, or 2) a recession lasting 2 or more years. 

Well, I hate to bring it up, but we are way past 2 years.  Obviously most people are still being able to buy groceries and live a fairly normal life.  Even though many people are not able to make their house payments, the GDP increased the first quarter by 2.4% and 3.7% the second quarter of this year.  That’s a sliver of good news!  So, why are we not getting out of this recession?  July’s unemployment rate still remains over 10% for Oregon and 9.5% for the U.S.  Only 71,000 private jobs were created.  That is terrible since private jobs are the driving force to our healthy economy!

Well, I say blame it on the government.  Although I believe their intentions are good, they only seem to swing the pendulum way too far the other way.  Strict oversight and over regulation will only paralyze our economy further.  The good news is that entities like FHA are starting to come around.  There is talk that they need to lighten up the oversight.  Keeping interest rates down can only do so much, but if a potential buyer can’t get financed, then it doesn’t matter how low the rates are.  We do need a balance of oversight and low interest rates.  The people who are taking advantage of this market are the investors.  Good for them.  They will be the ones who will be reaping the rewards in about 20 years.  The problem is that there are not enough of them to help us reduce enough inventory to get us out of this mess.  The government needs to loosen its grip on the financial systems and stop thinking they need to protect us from every danger out there.  The free market will not sustain with Big Brother looking over the shoulder every second.  The other alternative?  We can be like Europe.  Lets keep in mind what made this country the greatest country in history.

Jobs Report

Today the Bureau of Labor Statistics jobs report came out that announced that we gained 162,000 jobs in the month of March(www.bls.gov).  On Wednesday the ADP (Automatic Data Processing) said we lost 23,000 private jobs.  So what does all of this mean?  First of all, it is good news that the BLS report shows job gain.  I want to make it clear that any growth is good for us right now.   The bad news in my opinion is that most all of these jobs are government jobs and many of them are temporary.  It is estimated that the US Census Bureau will create approximately 800,000 jobs from January to May of this year.  That is all wonderful, but May is only a month away.  By the way, did you send in your Census yet? 

I do believe that the health of our country’s economy, including our housing market, is going to be built on the foundation of a strong PRIVATE work force.  Small businesses and corporations are what encourage the American Dream that we have become known for.  Government jobs only create more dependence and add to our problems.  As you can tell, I am not a fan of big government.

Our housing market has stopped its hemorrhaging, but we continue to seep if you will.  The tax credit that expires in 28 days, which will NOT be extended, is holding us steady with properties under $200,000 here in the Willamette Valley.  Homes over that price range and especially homes above $300,000 continue to drop in values.  Again, everything hinges on our employment rate and the confidence that Americans have in our economy.  We will not see home values stop dropping until we get people back to work.  Our current unemployment rate is holding at 10.5% here in Oregon.  That is better than the 11.6% it was in 2009, but we have a long way to go.  I don’t believe we will sustain our problems in the long run with more government jobs.

In the midst of the economic conditions, I do believe now is the best time to buy a home if you are in the market.  I do believe that housing rates will continue to rise from here on out, which will cost a buyer more money than the potential drop in home values.  If rates go too high, then it will price home buyers out of the market completely, then we will be living in the early 1980’s once again.  Only cash buyers were purchasing homes and only a few were selling on contract.  Purchase agreements must be inked by April 30th, and homes must close by June 30th to get the $8000 “First Time Home Buyer” tax credit, and the $6500 “Move Up Home Buyer” tax credit.