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Tuesday, September 17, 2013

What's the real story behind the US economy, and how does it effect real estate?

2013 saw substantial rises in real estate values across the nation
Higher mortgage interest rates have a dampening effect on real estate sales
By Jeffry Evans

In a surprising turn of events, the Commerce Department revealed that the economy grew at a 2.5 percent annual rate from April through June, which is much faster than they were previously projecting. The good news also continues. Some economists are expecting the growth to stay at an annual rate of 2.5 percent for the second half of the year as well, which is excellent for aiding in an economic turn around; while other economists are saying those projections may be a little optimistic. So what exactly do these numbers mean for us and our economy and our real estate market today?

Why the higher economic growth rate?

There are several factors why the economy grew so much in the first quarter of 2013. For one, American companies exported more goods and the number of imports declined. The use of American products helps our economy greatly. Also, the growth is due to overall steady job gains and federal spending cuts, along with improvements in the trade deficit which helped offset the low government spending.

Where is the real estate market now?

One thing is for certain, the real estate market is starting to grow again as well. We've seen housing and business investments remain strong in the second quarter as well. Housing construction grew at an annual rate of 12.9 percent, which makes it the fourth consecutive quarter of double digit growth. Those are the kinds of numbers we want to see when examining the health of local real estate markets and the overall growth and health of our economy. However, some economists are slightly less optimistic about continuing the same growth into the next quarter, and they may just be right.

But are the numbers accurate?

In another report from Reuters, US consumer barely rose at all during the last quarter, and that's a big deal on how Americans feel about the health of the economy. As the Federal Reserve is considering cutting back on it's massive bond-buying program, this should be a major factor in their decision. Consumer spending accounts for more than two-thirds of US economic activity, could struggle even more to gain momentum if interest rates keep rising. The Commerce Department said that consumer spending only rose by 0.1 percent, much lower than economists had been projecting.

What could this mean for real estate in the future?

While some economists are extremely optimistic for the economic growth for the second half of the year, others are cautioning that higher interest rates may slow our growth instead. Paul Ashworth, chief US economist at Capital Economics, hinted that the strong growth we've seen in the second quarter should give the Federal government “more confidence that the recovery is gathering steam as the fiscal drag begins to fade.” This means that rates could go even higher if the Federal Reserve decides to reduce it's $85 billion a month in bond purchases later this month. In the past, these bond purchases have kept long-term borrowing rates low, in hopes of jump starting our economy. Higher interest rates could mean less people borrowing, which will certainly have an effect on our current expansion numbers.

About the author: Jeffry Evans brings you the top resources to get your real estate license. If you're looking to become a real estate agent check out my site http://www.realestatelicense.org/ to see the requirements and resources your state has.