Real Estate Statistics

Industry analysts predicted the collapse of U.S. commercial real estate but it never materialized in reality. Of course, the market is just coming out of an economic downturn. Recently, a Federal Reserve executive told a congressional committee that commercial real estate was close to bottom.

Yet an even greater crisis had been predicted by many observers. It was believed that commercial real estate would fall, drag the economy back to a recession, and cause a catastrophe in the banks. Indeed much to the surprise of many people, commercial real estate is on the rebound.

Overall Recovery

Although the positive trend can be seen across the country, it picks up steam in major centers like New York City. Overall, the commercial real estate market looks promising but there are pockets of distress. As well, the market is far below its 2007 peak.

Underlying market fundamentals are reaching a stabilized state. At the end of 2010, vacancy rates were not increasing in office, industrial, and retail sectors. Although vacancy levels were elevated to varying degrees (13%-16%), sales of commercial real estate improved in every quarter of 2010.

CB Richard Ellis in Los Angeles, the world's largest commercial property brokerage, reported double-digit fourth-quarter gains in all its global business lines except real estate development services. Bricks & Mortar Capital President, Craig Silvers, explained that improving economies in the United States and Asia have more companies taking action on real estate matters. In fact, Silvers suggests that companies are trying to "lock in real estate leases or buy property before prices get out of control."

Commercial real estate due for upswing?

Financial Stress

If lenders concentrated their efforts in commercial real estate, they may feel more than a little stress. Keep in mind that $3.4 trillion is outstanding on real estate loans. Plenty of defaults will mean a ton of foreclosures. Almost 1,300 small banks nationwide hold a considerable number of commercial real estate loans.

Yet a top Federal Reserve official, Patrick Parkinson, played down any worries. He believes that bank struggles will not be as grave as earlier predictions. Commercial real estate will not be the downfall of U.S. banks.

Future Issues

It is possible though that there could be difficulties in the future. Present loans will mature and need rolling over, therefore, putting banks under strain. Most commercial mortgages have shorter maturities (three-ten years) than those offered by banks for residential loans. In addition, commercial loans are structured so that they are 'rolled over' instead of being repaid during the life of the agreement.

No Threat

Commercial loans are not a huge threat to big banks. No doubt, the market is dragging a little. A few financial institutions hold large portfolios of mortgage-backed securities. Yet already, they have taken huge write-downs on them.

"While we expect significant ongoing CRE-related problems, it appears that worst-case scenarios are becoming increasingly unlikely," says Patrick Parkinson, the Federal Director of banking supervision and regulation.

U.S. Commercial Property Recovery Spares Economy

UPDATE 2-US commercial property loans a drag, not huge threat

Do You Have Confidence In The U.S. Commercial Real Estate Market?

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The football team whose city has the most commercial real estate vacancies will win the Super Bowl. That is the prediction of Roger Staubach who led the Dallas Cowboys to two Super Bowl victories in 1972 and 1978. At present, Staubach is the Americas executive chairman for Jones Lang LaSalle - a global financial and professional services company specializing in real estate. Based on his expertise and experience in sports and property, the former-football-player-turned real-estate-executive stands by his belief.

“As a student of both football and commercial real estate, I can tell you that this vacancy rate hypothesis is absolutely the real deal. When it comes to picking a winner, you can throw everything else out the window,” says Roger Staubach, the Americas executive chairman for Jones Lang LaSalle.

Social and Economic Impact

Staubach and his son Jeff (a senior vice president at Jones Lang LaSalle) have been blogging about Super Bowl XLV and throwing a bit of real estate into the mix. Whether or not you give credence to the prediction, the Super Bowl does have a social and economic impact on the city that holds the event. Actually in 2010, the Staubach team launched "Countdown to the Super Bowl: The Economic and Social Impacts for North Texas." Staubach chaired the bid to hold the event in North Texas.

Financial Giant

Jones Lang LaSalle has stayed in the background as Staubach shares his predictions. The global financial firm has not offered any explanation about the connection between commercial real estate and Super Bowl wins. Of course, real estate predictions can be based on anything from a crystal ball to empirical research. Yet it is doubtful that Jones Lang LaSalle favors the crystal ball method. The professional services company is more the 'trends and statistics' type who would favor scientific methods.

Jones Lang LaSalle Hotels handles major financial announcements. The group forecast the 2011 deal volume (US $13 billion) in the Americas. The team figured out that REITs would be among the most active buyers with total volume for 2010 expected to be US $10.5 billion.

Winning Prediction

Not surprisingly, Jones Lang LaSalle has not weighed in to any great extent on the 'winning' prediction. Apparently though, the company has no objection to their executive chairman for the Americas claiming that his prediction is the "real deal." Maybe Jones Lang La Salle and Roger Staubach are smart enough to know that they are the winners getting the real deal.

We can predict that the 'prediction' is great publicity. According to the NFL, 65% of Super Bowl attendees are corporate executives. The group could include executives who might buy office space in the city or even relocate their headquarters. After these predictions, they will remember the names of Roger Staubach and Jones Lang LaSalle.

Who Will Win The Super Bowl?

Pittsburgh Steelers vs. Green Bay Packers Sunday - February 6, 2011

According to Staubach's theory, the Green Bay Packers will win over the Pittsburgh Steelers. Green Bay's commercial vacancy rate is 18.9% but Pittsburgh has one of the lowest office vacancy rates in the US – just 12.1%.

And Yet Another Interesting Fact…

Since 2002, almost two thirds of Super Bowl wins have gone to the city with the most office space vacancies.

Super Bowl winner predicted by analyzing commercial real estate vacancy rates

Who Do You Think Will Win Super Bowl XLV?

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2011 is shaping up to be the "Year of The Landlord." As many people face the winter winds, we are reminded of a wise old saying.

"It's an ill wind that blows no good." ~ John Heywood (1497-1580)

In the case of the winds of change in real estate, falling house prices and slow sales have challenged many sellers but benefited more than a few apartment building landlords. More people are choosing to rent but others can find no suitable alternative to apartment living. Everyone has their own reason for deciding to rent property rather than buy a home.

Rent or Own

Sometimes renting is the best choice for an individual. Indeed, many renters prefer the apartment lifestyle. After all, renting a luxurious NYC condo does not seem like such a bad deal. Even renting any apartment has its perks such as more flexibility in relocation and less maintenance responsibilities.

Of course, other renters would sooner own a home. Often foreclosure forces homeowners to become renters. Sometimes potential first-time buyers discover that they cannot afford the financial commitment of a home. The Federal First-Time Homebuyers' Tax Credit is no more and not everyone has an "angel investor."

Whether people choose to rent or have no other choice, landlords are gaining tenants. Banks and lenders are also smiling – especially if the apartment building owner had been previously under financial duress. Borrowing has become less expensive with low interest rates.

This effect is noticed with commercial real estate of all types. The low rates have a positive effect on borrowing for office buildings, retail outlets, and company warehouses. The apartment market, however, is the healthiest of the commercial categories – mainly because of cheap financing.

Investing in Apartments

Obviously, investors are interested in apartment buildings. Actually, 'flipping' properties is coming into vogue again. The practice of reselling quickly for profit is somewhat prevalent at all times.

Yet 'flipping' is as popular now as in earlier thriving economic periods. This practice can have its place - if done responsibly for the right reasons. Illegal flipping, however, is a different matter. It involves scams, disregard for others, and a goal of profit at any cost.

Higher Values

Apartment building values have risen to levels not seen since the middle of 2007. According to the brokerage firm Marcus & Millichap, values of apartment buildings rose 16% in 2010. Green Street Advisors, a research company tracking REITs, say that present values are now within 10% of their 2007 peak value.

Of course, apartment values in major centers such as New York and Washington, D.C., have shown signs of recovery since 2009. Currently, increasing apartment values can be seen in additional markets including Los Angeles and Seattle as well as other U.S. cities. At the end of 2010, TIAA-CREF paid $62 million for the 261-unit Newbury Commons in Stamford, Connecticut. According to Real Capital Analytics, this sale price was 65% more than the amount paid by Seaboard Properties in February 2009.

Apparently, even Las Vegas is seeing the high values. Keep in mind that Las Vegas was affected greatly by the economic downturn. Yet in December 2010, the Croix Townhomes complex in the Las Vegas Henderson suburb sold for nearly $20 million - $143,000 for each unit – a price even far above the national average. The 'apartment advantage' might be the start of the next big trend in investment property.

Housing Woes Fuel Apartment Surge

Will 2011 Continue To Be The "Year Of The Landlord?"

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Most likely, the majority of real estate predictions fall somewhere in the middle - based on more than a crystal ball and less than empirical research. Maybe there might be one or two people who put predictions out there without any thought. Yet most real estate predictions are the result of studying trends and statistics.

Accurate Predictions

Apparently, a few of these predictions can have a high accuracy rate. For example, the Globe and Mail has tallied the score for predictions made by Neil Downey, RBC Dominion Securities analyst. Downey offered five predictions for 2011. Before the end of January, three predictions have become reality.

The Globe and Mail's story is titled – "The real-estate crystal ball." Probably, careful observations are responsible for these impressive results. No crystal ball here; maybe though a little luck, too!

Which Correct Predictions Did The Analyst Make About Canadian Real Estate?

• Richard Baker, the New York investor who bought Hudson's Bay Company, is ready to close a $2-billion deal bringing Target Corp. into Canada.

• RioCan Real Estate Investment Trust is looking for funding of its acquisition plan as well as refinancing for outstanding debt. Recently, REIT hit the market with rate reset preferred shares and senior unsecured debt.

• Canada's commercial mortgage-backed securities market is making a rebound. Two major real estate companies are tapping the market for $206 million – the first deal of this type since 2007. 

As well, Downey predicted more TSX-listed REITs at the end of 2011 than the beginning and less equity raising activity. The Globe and Mail is waiting to see if these two predictions will come to light.

Core Predictions

Real estate predictions are a serious business. The real estate industry is at the core of an economy. Home buyers account for a huge percentage of economic activity. Commercial real estate involves three main categories - retail (stores, malls), industrial (factories, warehouses), and commercial (offices, multi-dwelling buildings).

Real estate transactions are handled by brokers and agents. Certain agents offer property management services to businesses. When entrepreneurs are doing well, real estate transactions experience an increase. In a poor economy, realtors help businesses to find the best location and affordable facilities.

Empirical Research

Empirical research (such as Plotkin 2002) has been conducted about the role of real estate in an economy. The "first major empirical nonfinancial ratio business success versus failure prediction model" was applied to the real estate industry in New England. The purpose of this study was to develop and test a nonfinancial model that would predict real estate business success or failure using the Lussier (1995) prediction model.

'Lussier' was selected for the study because it had been published in more journals than any other model. The study suggested that similar methodology be used to conduct studies in other parts of the US as well as in other countries. Real science here – far more than a crystal ball!

A Success Versus Failure Prediction Model for the Real Estate Industry

How Have You Arrived At Your Real Estate Predictions?

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Ok, Google fans, no need to panic, you can still search for everything though your favorite search engine. You can no longer search for real estate listings, however, on its Maps portal. Everyone can continue to find real estate websites and related content via Google. Maybe that's even how you found this blog!

Discontinued

Actually, interested parties can still find real estate listings on Google Maps - until February 10, 2011. After that date, everyone has to revert to their previous method of searching for property. Yet Google does not expect potential home buyers to be too upset with the loss of this service.

Despite the search engine's tremendous popularity, few people were using the real estate feature. Now the news about low usage might seem odd to many observers. After all, Google holds a dominant market position. Yet in their recent statement, the corporation acknowledged the reason behind the lack of response to real estate listings on Maps.

"We recognise that there might be better, more effective ways to help people find local real estate information than the current feature makes possible. We'll continue to explore this area, but in the meantime, Google offers other options to home-seekers." ~ Google Inc.

Tough Competition

As well, Google's response noted "the proliferation of excellent property search tools on real estate websites." There is much truth in that statement – at least real estate statistics point in that direction. A 2009 National Association of Realtors survey showed that 90% of modern home buyers use the internet in their property search. Buyers sift through photos and take virtual tours of properties in their preferred location and price range. Consumers make short lists for viewing based on their online observations.

Although Google is a force to be reckoned with, this corporation has competition. Yet in this instance, the presence is not Yahoo or another search engine. Google is forced to compete with quality real estate websites.

Indeed, it makes sense that real estate websites can challenge Google in this area. Expert realtors and industry leaders know real estate. There is truth in saying - knowledge is power.

Of course, Google executives are not shocked by this recent development. They knew the score going into the game. As well, officials in the real estate industry expected this result. Former REA chief executive Simon Baker mentioned the probability of failure in recent days as well as at the time of the original announcement about the venture.

"The issue is that it's hard, but not necessarily impossible, but the thing is you need to have a coordinated and thought-out approach. I think they had something partially thought out, but there were elements they didn't understand," says Simon Baker, former REA chief executive.

Revised Feature

Yet Baker thinks that a revised model could meet the needs of the consumer. To a certain extent, this venture was an experiment for Google – complete with experimental apps and programs. In reality, the elements of search with this feature were not as advanced as on popular property sites.

Bad Timing

Timing is a big deal in real estate. With Google's real estate feature, confusion cropped up about the status of the listings. Is this a current listing?

Up-to-the minute data matters in the real estate industry. It matters to the person conducting the search. Finally, the consumer's needs decided the fate of Google's real estate feature.

Friendly Realtors

Of course, do not count Google out of the real estate game. Such a powerful entity does not reach its present position by ignoring facts or not learning from failures. If Google does try again, they will have to convince the real estate industry that listing on their Maps portal will bring in more sales. Many leading realtors did not participate in this initial project. Maybe next time, Google Inc. will find what they were searching for in the real estate listings.

Real Estate Search

Just one question! Recently, Google bought the former Port Authority Building at 111 Eighth Avenue in New York City for $1.9 billion. Did they use their Maps feature to find the listing or did they search at a real estate website?

Google dumps real estate research on Maps

Would You Search For Real Estate Listings On Google Maps?

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Let's face facts! When someone is thinking about buying a home, they are more interested in the news about local real estate than global real estate trends. They care about the price of the house across town. Interested buyers pay less attention to long-term predictions or the housing market in another state.

The buyer has eyes only for the dream home around the corner. Yet the truth is that the overall picture affects that dream as well as the future reality for the new homeowner. Housing markets differ but they do not exist in isolation.

Local markets are affected by external influences. Therefore, potential home buyers should arm themselves with detailed information about real estate conditions. Of course, a great deal of that data should focus on the state of local real estate.

Various organizations in different states release real estate information organized from data at regional multiple listing services. As well, housing reports are available based on data collected from county governments. Yet current statistics have to be always examined with care. Today's numbers can tell a different story if looked at in comparison to a previous period.

What Is The State Of Local Housing Markets?

California

According to the California Association of Realtors, the housing market in the Golden State recorded a 5.9% rise in sales from November-December 2010. Yet year over year, the number of transactions fell 6.8%. The median price for an existing single-family home in the state was $301,850 - up 1.7% during December - but down 1.6% from the same month in 2009.

California home sales rose in December but dragged slowly earlier in the year – especially after the expiry of the Federal First-Time Homebuyers' Credit. Within certain areas of California such as the Santa Clara Valley, median home prices were flat in 2010. Other parts of the state experienced a drop in house prices. Los Angeles, Orange County, Sacramento, and Santa Cruz County experienced a decline.

The San Francisco Bay Area and High Desert regions had median gains. Regarding sale prices, three Silicon Valley communities received top ten ranking during December 2010. Los Altos made the list with median sale prices at $1.3 million, Cupertino at $904,500, and Los Gatos was at $840,000.

The Best And Worst Cities For Home Values In 2011

Florida

The Florida Realtors Association has just released the final figures for home sales in 2010. Within Florida, local real estate results were a mix of increases and declines. Overall, sales of single-family existing homes and condos were up but prices took a fall.

Yet conditions varied drastically from one location to another. Across the state, home sales increased by five per cent. The biggest gain was in Ft. Walton Beach – a rise of 7 % - while the largest drop was in Panama City – a drop of seven per cent.

In 2010, the median sales price for a Florida home decreased 4% from 2009 figures. House prices in the four major regional markets in Florida stayed near the average. Once again, Panama City was the exception – with a 9% decrease. As you browse through the headlines about local real estate, you will discover that each page can tell a different story.

Florida And The Local Real Estate Mixed Results for the Year

What Is The State Of Real Estate In Your Local Area?

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Many potential home owners in Canada are reeling from recent mortgage changes introduced by their federal government. Yet the Canadian administration believes that the modifications will make a positive difference in people's financial health. The regulatory changes are meant to save consumers from themselves in terms of debt load. The government is hoping to discourage potential home owners from taking on debt that they cannot handle in reality. As well, the regulations aim to discourage unwise use of home equity lines of credit.

Helpful Advice

Now many people will argue that consumers should not be prompted in one way or another; they should make their own decisions and live with the consequences. Of course, too little regulation can also cause financial woe. Consider the recent U.S. dilemma. Mortgage approval might have been too easy in some instances; many consumers became homeowners but lacked the financial means to handle the commitment.

Mortgage Changes

(Canada)

According to Canadian Finance Minister Jim Flaherty, effective March 18, 2011, the term of government-backed mortgages has been lowered to 30 years from 35 years. As well, the maximum amount of equity for refinancing will drop to 85% from the previous 90 per cent.

Many hopeful first-time home buyers are not pleased with this recent development. Yet the government insists that they are helping consumers. Eventually, homeowners will be faced with a rise in interest rates. This latest intervention is designed to discourage buyers who will not be up to the challenge.

Massive Debt

According to recent statistics, Canadian household debt has soared to 148% of disposable income. Of course, shopping trips and house sales fuel the economy but there is an 'elephant in the room' with such a high percentage of debt. The Canadian government has chosen not to ignore the massive amount of debt carried by many home owners.

Beginning April 18, the Canadian government will stop insuring newly issued home equity lines of credit (HELOCs). An ever-increasing number of home owners in Canada are using these lines of credit. In fact, HELOCs account for 12% of consumer debt.

Home Equity Lines of Credit

Actually, 50% half of these variable-rate loans are spent on consumer goods including new cars and boats. Only one third of the loans go towards paying down other debt. Therefore, the Canadian Mortgage and Housing Corporation has reconsidered its practice of insuring home equity lines of credit.

Government Regulations

With recent mortgage changes, the Canadian government claims to have considered the best interests of consumers. Of course, distancing themselves from the inevitable future rise in interest rates might be a wise move for this government – especially with a possible election in the near future. As well, in 2006, this government allowed the Canada Mortgage and Housing Corp. to lift its 25-year limit on mortgages and insure up to 40 years.

In 2008, Flaherty rewound the 40-year term back to 35 years. Maybe this latest move is an attempt to distance themselves further from that original rash decision of extending limits to 40 years. The Canadian government, however, has to be prepared for their new regulations to have a few undesirable effects on the economy. Almost one third of Canadian mortgages in 2010 were for 35-year terms.

Mortgage changes sensible

Do You Think The Canadian Government Made Sensible Mortgage Changes?

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Cold weather makes us long for the warmth of hearth and home. The desire for a cozy spot in front of the fireplace works to the advantage of the real estate market. Cold weather and the real estate market seem to be the perfect match.

Longing for Home

For most people, the thought of curling up by the fireplace with a good book and a warm drink is a comforting image. Do we have a positive reaction to that scene just because of the human need for comfort and warmth? Or are we influenced somewhat by advertising campaigns of savvy entrepreneurs and eager realtors promoting that association?

Make no mistake; realtors are aware of the 'longing for home' syndrome that can set in during cold weather. Renters in tiny apartments might be more inclined to wish for that home with a welcoming and warm kitchen. Maybe homeowners would consider upgrading to a house with a better heating system or the golden glow of a fireplace or two. All 'golden' opportunities for a waiting realtor!

Leaving Home

On the other hand, cold weather can be the impetus to get sun worshippers to think about leaving home. Actually, realtors in warm climates bank on that reality. Winter-weary home owners will want to leave the snow banks in search of hotter temperatures. Therefore, a hot real estate market materializes in warmer locations.

With almost all U.S. states now covered in snow, Florida realtors are optimistic about home sales. Joseph Santini, a Florida realtor, explains the logic behind their reasoning.

"What it really comes down to is would you rather shovel two feet of snow or go to the beach to shovel sand? The cold weather is good for us,” says Joseph Santini, Boca Raton broker.

Florida realtors have their sights on homeowners in colder cities such as New York, Massachusetts, and New Jersey. According to Santini, their marketing yields results and freezing home owners reach out for a little warmth.

Florida realtors know, however, that they must market aggressively while temperatures are at their lowest points. The same urgency about a move to sunny climates will not exist if a homeowner's thoughts start shifting to the approaching wonders of spring. Santini details the general marketing approach to attract homeowners in colder climates.

"The trick is to be aggressive in selling while the weather is frigid elsewhere and meteorologists talk about weather events like “snow bombs,” explains Joseph Santini, Florida realtor.

Hot Bargains

Of course, Florida realtors are also willing to sweeten the pot and throw a few bargains into the mix. According to the Florida Association of Realtors, the average sale price of an existing home in Brevard was $105,600 in November, 2010. Consider that the price of the same home was $184,000 in 2007.

Cool Perks

Other factors in Florida also play into the realtors' hands. They can offer homeowners extra perks such as affordable short sale properties and no state income tax.

Nation's cold snap may heat up Florida's real estate market

Are You Ready To Leave The Cold Weather For A Hot Real Estate Market?

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Many U.S. home sellers saw dollars vanish in front of their eyes during the past year. Although the vanishing act was really an illusion as the money never existed – except in an over-zealous home seller's mind. Pricing homes outside the realm of reality holds no magic; it just ends with disappointed sellers. All the dollars disappear because home buyers move on to another dream (and price) within their reach.

During the past year, no home sellers (upscale residence or small house) were exempt from price reductions. According to the Washington Post, Former Treasury Secretary Henry Paulson had to reduce the asking price for his Washington, DC home. In 2010, the property sold for almost one-third less than the original asking price. The buyer paid $3.25 billion. During 2006, Paulsen had paid $4.3 million for the property.

Chicago Home Sellers

Between March-December 2010, Chicago home sellers saw a widening divide between their preferred price and the actual amount of the home sale. The Chicago Agent magazine examined monthly data for Cook, DuPage, Kane, Lake, McHenry, and Will counties. The price reductions endured by sellers were calculated at $459 million a month.

Despite the size of the area, Cook County sellers led other counties in their average number of reductions (17,335) per month. As well, this county had the biggest cuts (percentage-wise) – almost 6% ($16,000) every time they lowered asking prices. Du Page County ranked second with 3,583 reductions (4.4%).

Chicago Home Buyers

Of course, Chicago home buyers were pleased with the reduced prices. Yet a few home buyers still paid a fine sum for their dream homes.

Chicago's Most Expensive Houses

            • $7.75 million - Barrington Hills (McHenry County)

            • $5.99 million - Lake Forest (Lake County)

            • $4.1 million - Hinsdale (DuPage County)

            • $2.99 million - St. Charles (Kane County)

Chicago's Most Expensive Condos

11 E. Walton Street

Three Condos

            •$7.4 million

            •$6.88 million

            •$6.28 million

Real estate mantra in 2010: How low can you go?

UK Home Sales

The current state of home sale prices varies from market to market. The average price of a home in England and Wales fell 0.2% to 222,827 pounds ($354,000) from November-December, 2010. Many UK home sellers do not want to be involved in transactions in this market. Many UK home buyers cannot get a mortgage. An Acadametrics report showed the number of transactions dropped by 53,000 (approx) in December 2010 – a 33% decline from the same period in 2009.

U.K. House Prices Decline for Third Month as Lenders Restrict Mortgages

What Do Consumers Predict For Home Prices In 2011?

The Chicago Agent magazine asked its readers for their predictions. At least 54% said that housing prices would remain the same as in the past year. Thirty one per cent of responses expected a decline of home sale prices in the coming months.

No doubt, within Chicago and elsewhere, home buyers are hoping for continued price reductions. Of course, home sellers always wish for higher prices. At least 15% of respondents to the magazine survey expected home sellers in 2011 would be getting better prices.

What Are Your Predictions For Home Prices In 2011?

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When it comes to promoting economic recovery, the Federal Reserve is not acting in a 'reserved' manner. The U.S. Federal Reserve Bank has a definite plan and defining purpose.

Plan

The FOMC (committee responsible for setting monetary policy) plans to purchase $600 billion in Treasury securities.

Purpose

Encourage economic growth and keep long-term interest rates at a low level.

Reason

The Federal Reserve wants to speed up the process of economic recovery. No doubt, there have been sure signs of improvement. During the third quarter of 2010, consumer spending rose at an annual rate of 2-1/2%.

More businesses also invested in new software and equipment towards year-end. Of course, the statistics have to be looked at in a realistic light. Spending and investment is 'up' compared to the activity in recent 'down' periods.

Yet small gains can be indication of big things in the future. Issues like high unemployment, however, do not disappear from the radar overnight. It could take four or five years for employment rates to return to a normal scale.

Only 103,000 U.S. jobs were created in December 2010 – less than the 150,000 expected for that period. With its pending bond purchase by the end of the second quarter in 2011, the Federal Reserve hopes to encourage economic growth. In fact, a drop in the jobless rate is expected – almost 9% by the end of 2011 – but it will stay above 8% throughout 2012.

Housing Market

On January 7, 2011, Chairman Ben S. Bernanke gave his report (The Economic Outlook and Monetary and Fiscal Policy) before the Committee on the Budget in the U.S. Senate. The overall message in the report was that the economy would be somewhat stronger in 2011. Yet Bernanke referred to challenges in the housing market.

"However, the housing sector remains depressed, as the overhang of vacant houses continues to weigh heavily on both home prices and construction, and nonresidential construction is also quite weak," says Chairman Ben S. Bernanke before the Committee on the Budget, U.S. Senate, Washington, D.C.

The Federal Reserve has reason to worry about the state of the housing market. Three main factors can cause an economic recovery to lose steam. Damage to the credit market and regulatory and tax uncertainty problems can pose danger to an economy on the rebound. As well, problems in the housing market are stumbling blocks in a recovering economy.

Cautious Optimism

Yet there has been an increase in pending and new home sales. The rise amounted to 3.5% in November. These figures were influenced by a flurry of sales (18.2%) in the West. The National Association of Realtors chief economist, Lawrence Yun, explained how 2,000,000 jobs and just a moderate increase in mortgage rates would influence home sales.

"If we add 2 million jobs as expected in 2011, and mortgage rates rise only moderately, we should see existing-home sales rise to a higher, sustainable volume," says Lawrence Yun, National Association of Realtors chief economist.

If lenders returned to safe underwriting standards for credit-worthy buyers, there would be a greater rise in home sales.

Real Estate Outlook: Federal Reserve Promoting Recovery

Do You Agree With The Federal Reserve Plan to Buy $600 Billion In Bonds?

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