POWER ECONOMICS
Forecasters project steady jobs growth: What Does This Mean for the Real Estate Market?
Many of the country’s top economists expect that the rate of growth of Gross Domestic Product to remain strong throughout the year due to a robust job recovery according to a survey of forecasters by the Philadelphia Federal Reserve. This group of economists also speculate that inflation will stabilize in the long term. Meanwhile, the Federal Reserve is under intense pressure to act more aggressively to control inflation after a recent report showed that inflation is growing at an extremely rapid rate, the fastest in 40 years. However, not all policymakers agree that the FED should launch the rate increases with a half percentage point increase. Some are convinced that the FED should speed up or slow down the rate increases based on what happens with inflation. GDP is expected to grow by 1.8% in the first quarter, down from 3.9% expected growth in November. Still, the forecasters expect that the economy will grow by 3.7% for the year, down only slightly from the previous expectations.
12 | MARCH 2022
SO WHAT DOES THIS MEAN FOR THE REAL ESTATE MARKET? In today’s real estate, we see markets becoming more and more divided, some are trying so hard to remain in balance with the supply and demand but many are being affected by what is happening nationally with inflation. From a distant view, we see that the economy is doing really fine, it has been growing at an annual rate of almost 2.5% and for those of you who don’t know, this is actually impressive. Especially given the current health pandemic. With a projection of 3.7% this year, this means that the unemployment rate is lowering, the stock market will be doing extremely well and exports rising. The housing market is affected by the state of the economy, the interest rates, incomes and the size of population. Looking at these factors individually we see that in a state where there is economic growth, obviously there are rising incomes. People have more to spend on houses which in turn increases the prices of houses up. In fact, demand for housing is noted as an income elastic; the more the income the bigger proportion of it will be spent on housing. In a similar fashion, in a failing economy, less money get to the people and affordability decreases. People simply cannot afford to buy houses and those that already have, they will be falling behind on their mortgages. When it comes to employment numbers, it is expected that jobs will increase during the year bringing the number to unemployed to record lows. This means many people will have the buying power which result to increased housing competition. Interest rates are another factor we have to look at. Interest rates will affect the cost of monthly mortgage payments. When there is high interest rates, this will increase the cost of mortgage payments and will cause lower demand for buying a house. Additionally, higher interest rates makes renting more appealing compared to buying houses. And the opposite is true. Last year was marked by relatively low interest rates which made the prices of homes to skyrocket.
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he GDP growth in the first quarter is growing a slower rate, but according to many forecasters, the Federal Reserve may be able to control the rate of inflation and still keep the rate of growth on track.
