Housing Market Following GDP? Not Likely!

They say the advantage in being a pessimist is that you’re so rarely disappointed. That may be true, but I – like most real estate people – can’t help but be an optimist. That’s what gives us the energy to get up each day and believe we can sell something.

But I’m nowhere near as upbeat as the people over at Freddie Mac. They may be in an optimism league of their own when it comes to the housing market. Their latest monthly outlook predicts that the housing market will mirror overall improvements in the economy. They see home sales nationally running three to five percent above last year’s pace for the remainder of this year.

Their view is that “experts” are predicting positive GDP forecasts for the rest of 2011, and therefore the housing market will improve accordingly. I can’t speak to what’s going to happen with the Gross Domestic Product, but I do believe that the housing market isn’t going to improve just because GDP does.

There may have been a period when that was true – the 1990s being a good example – but I think times have changed, to put it mildly. Blame the recession. To cope with the economic crunch, companies have forced themselves to become more productive, doing more with fewer employees. So while the GDP – which measures what we as a nation have produced – may look reasonably healthy, there aren’t as many people working and driving that production.

Fewer people working means fewer people in a position to buy a house. The “middle class” may be the group squeezed hardest by this economy, and unfortunately, it’s the middle class that powers the housing market. Don’t even get me started talking about the national debt and its effect on all of this. Suffice it to say that until we start to get that under control, we’re not going to see a lot of improvement in the housing market or in the economy as a whole.

So while it could be worse, I do believe the housing market is going to struggle for some time to come, until we can give natural market forces time to do their work. That’s taking longer due to so many of the actions that the government has taken in an attempt to mitigate the damage, but it will happen eventually. Until then, maybe the Freddie Mac prognosticators should get out of the office more and see what’s happening in the real world.

 

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