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The US Economy in 2008 and What it Means for the Real Estate Market

published on January 30, 2008

Signs of economic turmoil have become too obvious to ignore.  2007 saw the greatest one-year drop in the value of the national real estate market since the great depression, according to the Commerce Department’s new numbers. 

There is certainly no consensus among economists as to whether we are in a recession – the International Monetary Fund, for instance, prediected recently that it is unlikely the US will slip into a recession. Actions, however speak far louder than words, especially when it comes to the words of bureaucrats and politicians.  And the actions of those in government recently suggest that we are indeed entering a recession.  Last week, for instance, the Federal Reserve cut interests rates by three-quarters of a point to stave off a stock market crash.  It was considered one of the most dramatic moves the Fed has made in many years. 

The move worked, foruntately, and US markets rebounded, but it seems like it is only a matter of time before the country is officially declared to be in a recession.

To give an idea of just how bad the economy has become:  Congress is actually cooperating in a bipartisan manner to quickly pass a stimulus package.  You know things appear in a stark relief when when both congressional Democrats and Republicans can agree on it.

However –  as the Fed’s move last week demonstrated – the government has become much more adept at dealing with the business cycle.  So, it is unlikely that a recession similar to the late 1970s or early 1930s will occur. 

Unlike many recessions of the past, this recession has been started by the housing market.  Most of the time, real estate is one of the last markets to start falling when a national recession begins.  This time around, however, it is likely that the housing market will bottom out at least six months before the economy as a whole hits its weakest point. 

With a million homes predicted to foreclose during 2008 due to the subprime crisis, it is unlikely that the national economy will begin growing quickly until at least early 2009. 

While these figures may seem dire, there still will be a number of opportunities for investment in the real estate market over the next year.  Real estate is one of the most localized markets in the country.  Whatever one says about the national market, the first three rules of real estate still remain in full effect:  Location, location, location.  Some markets have already felt the brunt of the subprime crisis and its resulting chaos, while others are just beginning to be pinched.

The nation’s economy will have a dampening effect on the national housing market for some time to come, but the savvy buyer will invest in the real estate market when it hits its low, which should be at least several months before the economy hits its lowest point, which will probably be in mid to late 2008.

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