Commercial PropertyOptimistic Stock Market Investors Could Spill Over Into Housing
This week, the Dow Jones Industrials reached 14,000 points, testing a new psychological barrier. To put the index into perspective, think back to July 2006. Housing was widely recognized as slowing, gas prices were rising, and the DOW was straining to reach 11,000. Since then, the Dow has risen well over 30 percent. That"s a good year for equities investors, who may decide that now"s the time to trade up to that bigger, better home.
And why not? Optimism is in the air. Rising interest rates, along with rising gas prices, appear to be taken in stride by consumers. But that could change if inflation numbers are reported higher than expected. Most economists believe that the gross domestic product will continue to expand, but that after this quarter, the rate of expansion will start to slow down again. That makes the third quarter pivotal for investors and forecasters.
The wild card is oil. Crude futures have risen to nearly $75 a barrel, but meanwhile prices at the pump are still lower than there were this time last year, so consumers aren"t complaining yet. But they are starting to stay out of the malls. Retail sales posted a telltale drop, the biggest in two years, largely driven by falling big ticket items such as automobiles, furniture, and electronics.
When consumers spent money, they tended to buy sports equipment and beauty supplies.
Well, it is summer, but they could have been saving for something even bigger -- houses.
Despite slower spending, consumers are optimistic. U.S. consumer sentiment -- as measured by Reuters and the University of Michigan -- was the highest in six months, and that"s after hearing that inflation could be as much as 3.3 percent this quarter. That"s a far cry from the near-recessionary 0.6 percent national growth recognized in the first quarter this year.
According to the Federal Reserve, which sets monetary policy in the U.S. inflation should be contained around two to three percent before the FED takes action to lower or raise short-term interest rates. Right now the FED is standing pat as it watches the seesaw being ridden by inflation and housing.
Those are some of the reasons why mortgage interest rates took a significant leap this week and is almost dead even with rates this time last year at around 6.74 percent.
Perhaps anticipating that mortgage interest rates were spiraling upward, consumers went to their bankers and applied for loans. The Mortgage Bankers Association reported that mortgage applications hit their highest level in nearly a year. That points to active interest in buying homes, so we could see a rise in the number of homes sold in the next month.
We"ll know more next week, when the Commerce Department releases its figures on housing starts. We"ll also have the latest economic readings on inflation. And we"ll hear what Federal Reserve Chairman Ben Bernanke has to say and whether those inflation numbers are good or bad for housing.
Right now, the picture is fairly rosy -- unemployment is held to 4.5 percent. Gas prices are stable, but set to rise, which could throw a damper on things. But if the stock market is anything like it"s been in the past, we"ll soon have a number of investors looking to cash out and reinvest their newfound riches.
One place they may look to park their money is housing.