Tuesday, June 21, 2011

Chapman Forecast: Economic Recovery Will Continue


Another day, another economic forecast –- but this one is pretty rosy, so pay attention. A day after UCLA’s Anderson School of Management predicted that the state’s housing market would slow the recovery in the state, economists from Chapman’s A. Gary Anderson Center for Economic Research released a forecast saying that low home prices, coupled with a strengthening job market, could help California's economy.

Payroll employment in the state will grow 1.6% this year, and 2.1% next year, forecasters say, with job strength in professional and business services, education and health services and leisure and hospitality. Gas prices will remain at current rates through next year, which means newly employed consumers will have more spending money. Taxable sales in the state will grow 5.9% this year, and 6.3% next year, they say.

With more money in their pockets, Californians will also be motivated to buy homes as prices continue to fall –- unless tight lending standards make it too tough for them to get loans.

Home prices in California will fall 4.4% this year, and an additional 0.7% next year, according to the Chapman forecast. And though there are a number of underwater and stressed properties in the state, fewer new stressed properties will come onto the market next year.

Housing prices in the nation will continue to drop as well, in part because there are more than 2 million homes in foreclosure in the nation. Forecasters say prices will drop 2.7% this year and a further 1.4% in 2012. But there are positive signs as well. New households should absorb some of the vacant units. Rental vacancies are also falling –- but as prices rise, renters may choose to buy homes instead.

Although people’s homes are worth less, many had gains in the stock market over the past year that made up for those losses. Household net worth declined by $680 billion because of housing prices dipping, but increased by $3 trillion because of stock market gains.

Nationally, as the dollar continues to slip in value, exports will increase. That will lead to gains in the gross domestic product of 2.7% this year and 3.6% next year. Job growth will also stay positive, adding 3.4 million jobs between now and the end of 2012, pushing the unemployment rate to 7.5%.

Forecasters say that although temporary shocks to the economy -- such as the earthquake in Japan and spiking gasoline prices -- may have led to slow growth this quarter, the recovery will still continue, and even accelerate.

"Going into 2012, there are a number of positive fundamentals that point to strengthening economic forces," the forecast concludes.

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Thursday, June 2, 2011

Should You Buy or Rent in this Market?

Families are trying to determine whether or not now is the time to buy a home. Some are advising these families to sit out the current real estate market and instead rent for the next year or two. We do not agree with this advice. Homeownership means a lot to a family. We also realize that the financial aspects of purchasing a home today can be a concern. The challenge is any advice given by someone in the real estate community is immediately dismissed as self-serving.

For this reason, we want to give you the advice of three entities not involved in real estate sales:

Citigroup

“When we examine the relationships between mortgage payments and income and mortgage payments and rent, we see that these relationships have also reverted back to or below equilibrium points. In some cases, particularly when mortgage payments are compared to the cost of renting, home prices actually appear cheap.”

JP Morgan

“JPMorgan analysts said ‘the continuation of falling rental vacancies and rising rental demand will make home buying increasingly attractive, especially as rental prices increase.”

Business School professors Eli Beracha and Ken H. Johnson

“Fundamental drivers now appear to be in place that favor homeownership over renting in the near term future…

The second finding might seem unwise to many given the recent crash in the real estate markets around the country. However, rent-to-price ratios now seem to be in place along with other fundamental drivers that favor ownership over renting…

Conditions (historically low mortgage rates and relatively low rent-to-price ratios) now seem in place to favor future purchases.”


Bottom Line

Is it better to rent or buy? According to those quoted above, it seems it may be becoming a no-brainer.

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