The good news is that, in my little corner of the world, real estate sales have really picked up this year! No doubt that some this activity can be attributed to the Home Buyer Tax Credit which is scheduled to expire on April 30th – and I sure hope that congress decides to extend that so we can keep the momentum going. From what I am seeing the Real Estate market in Southeastern Michigan has really stabilized with inventory way down and sales way up. Real Comp’s recent statistics for Oakland County showed sales up 20+ percent over last year and inventories down 25 percent! Based on the law of supply and demand this should create a much more stable base for prices this year and this is evidenced by the fact that we are seeing final sales prices that are generally within 5% of asking price on most deals.
Another factor contributing positively to the market is low mortgage rates with rates this year running between 4.875% and 5.25% on 30 Year Fixed Rate loans for well qualified buyers. Rates have stayed low not because the Federal Reserve has kept the Federal Funds rate at close to zero, but because news on inflationary pressures has been non-existent. Inflation, or the fear of it, is what causes mortgage rates to rise. This month both the Consumer Price Index (CPI) and the Producer Price Index (PPI), which are both the preeminent inflation indicators, were reported as pretty much flat, meaning that there is little to no upward pressure on the prices of goods and services in the U.S. (right now). As long as that remains true interest rates will stay low.
Arguably the most important factor which will affect interest rates over the coming months is excessive government spending. Yesterday, the government sold a record $42 billion (yes billion) dollars of 5 Year Notes and the demand for this new debt has been low because there is a limit as to how much U.S. debt the world is willing to hold! Interest rates on these bonds are pushed higher in the marketplace in order to encourage buyers to act and this increase in treasury borrowing rates will bleed into all other interest rates in our economy. The government must stop the record deficit spending or it is going to have serious consequences. As of right now, interest rates are still holding at a very very low position.
So, here in Bloomfield Hills, Michigan, the economy and real estate are looking a bit brighter. The big auto makers which dominate our local economy have made major strides in improving their long term positions and to ensure their survival – maybe even to start to prosper again. Continued strength in the economy is directly tied to consumer sentiment and it seems that we consumers are feeling a bit better and opening up our wallets just a little bit wider. Let’s all think positively and encourage those around us to do the same and then we’ll see the current trend take hold. This in turn will increase business profits and then business will hire more employees and things will just keep getting better. The economy is really just a state of mind – our state of mind!