The effects of higher interest rates and energy prices, combined with decreased home price availability have reflected a cooling-off period of the housing market.
Housing construction is suffering as well. An increased inventory of properties already saturating a depressed market means an excess supply of housing. New construction of homes and apartments, the purchase of building products and employment in construction-related fields will all be on the decline as the market softens.
Real estate is vital to the continued growth of consumer spending, and to the economy’s growth.
Throughout 2006, the Federal Reserve has been tightening credit in an effort to keep inflation under control by increasing interest rates.
In order for there to be a positive growth of the economy an effort to reduce inflation must be achieved without inviting the risk of recession.
Crude-oil prices continue to escalate; the war in Iraq drags on with no sign of abating; the market is imperiled by gas prices that have anxious consumers wondering when there will be an end to the global energy problem.
A higher household expenditure on gas adversely affects the purchasing power of households, and their attitudes on spending.
Why should rising energy costs directly depress property sales? A surfacing trend seems to indicate that when gas prices rise home sales decline. When the prices drop, sales increase.
With rising rates and mounting energy costs the fall-out on the economy could be wide-ranging.
Despite the economic slowdown, the N.A.B.E. (National Association for Business Economics) has predicted that America’s economy (as measured by the Gross Domestic Product/GDP) will expand in 2007. And, that although a 2.8% increase in core inflation is forecast, food and energy will be excluded from the rise.
The Federal Reserve will not feel inclined to raise interest rates further if there is a fall in inflation pressures (however, high gas prices, and other commodities have the potential to sustain inflation pressures).
Therefore, 2007, according to Commerce Secretary, Carlos M. Gutierrez, should be a year when Americans feel optimistic about growth and prosperity.
Happy New Year!
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“Your” Money Matters
By Carl Hampton
Author of “From Credit Despair To Credit Millionaire”