Purchasing
- Your first home
- Your next home and move
- An investment property
- A vacation home
Refinancing
- To tap your home equity
- To save money
- To avoid rate increases
- To lower monthly payments
Home Equity
- Loans and lines of credit
- Finance major expenses
- Consolidate Debt
- Invest
Housing market not fueling economy
The United States economy seems to be slowing down, according to figures released this week by mortgage giant, Freddie Mac.
The housing market, which has been cooling off recently, is no longer a key factor in fueling the economy. There is a surplus of homes on the market, with a decrease in the amount of people buying them.
The slowing market makes it so it is not as much as a key element as it was during the “boom” of the past five years.
The article, “Housing bubble watch: Housing sector is no longer fueling economy,” from mortgagenewsdaily.com discusses the details of this phenomenon.
The government is trying to keep inflation in check, and that is why the Federal Reserve has raised interest rates 17 times in a row. They recently stopped raising the rates, or at least temporarily paused, and they are now at 5.25%.
“Slowing growth and rising inflation are squeezing the housing sector because the former causes family incomes to rise more slowly and the latter has been driving interest rates higher. The housing sector is no longer fueling the economy as it has since the 2001 recession the report concedes, but 2006 will still be the third strongest year for home sales in history and residential investment and housing consumption are still contributing strongly to GDP growth. Investment was contributing about 6 percent and housing consumption around 10 percent during the first half of the year.”
In terms of the economy, unemployment, interest rates and the housing market are all tied together closely, and rely on one another for balance.
If one gets off-kilter, it will mess everything else up.
People are combating the effects of the slowing economy by refinancing their current mortgages for lower rates or taking out a home equity line of credit.
Many people are also trading in their adjustable-rate mortgages for fixed-rate mortgages. This is so they will not have to worry about interest rates rising yet again, and their monthly payment ballooning.
“The report estimates that $500 billion in first mortgages and $650 billion in second lien loans will be refinanced this year and that a total of $155 billion was pulled out of home equity through refinancing in the first half of the year. However, the report points out, as house price appreciation slows, homeowners will be increasingly unable to use such refinancing to balance higher interest rates with slower income growth.”
Another indicator of the slowing housing market is that housing starts are down as well as the speed that homes are selling on the market.
“Housing starts are dropping due to slowing housing market activity and figures for the second quarter came in at 1.88 million units for the second quarter which was below the July estimate of 1.91 million.”
“Home sales are also slowing slightly faster than anticipated. They were down 5 percent in the first half of this year compared to 2005 and Freddie is now projecting 6.90 million single family home sales in 2006 and 6.46 million units in 2007.”
Only time will tell what exactly is going to happen to the future of the economy and the housing market in general. We can only hope that things will get better, and the housing market will again be a driving force in the U.S. economy.