Will rising gas prices really increase home sales?
Freddie Mac is out with its April economic forecast and after reading the highlights you have to figure these folks don't get out much. If they did they might have noticed the soaring price of gas.
The company says there are now signs of "a pick up in home sales beginning this spring driven by the recent encouraging employment reports, low mortgage rates and continued high home buyer affordability."
One would expect home sales to pick up in spring, given that winter tends to be filled with blizzards and such. The job reports show less unemployment in terms of percentages, but 13.5 million people officially are out of work--a figure which does not count the 2.4 million people were "marginally attached" to the labor force and millions more who are afraid to look for better work or to ask for higher wages.
Oh, and yes, it's true that mortgage rates continue to hover around 5 percent and low rates should mean increased affordability. However, low rates are not enough, there also have to be reasonable underwriting standards and there have been many complaints that loan applications are getting tougher.
Affordability also relates to the matter of prices and the news on that front is hardly good. As of January, says the home prices nationwide are 16.5 percent below their April 2007 peak and roughly where they were as of May 2004.
Gas prices factor in
While all of this stuff is interesting to discuss, a huge issue remains unmentioned: Freddie Mac's April Economic Outlook somehow does not reflect on rising gas prices and their impact. The terms "gas" and "gasoline" are nowhere to be found.
Gas prices are central to the U.S. economy. If prices go up households have fewer dollars to spend on other consumer purchases. That's a problem because about 71 percent of our economy emanates from the money we individually spend.
Equally bad, the price of many goods, commodities and services rise because shipping costs increase with gas price hikes. Also, employers may not be able to hire additional help and that is hardly good news.
Does this impact mortgage quotes? If gas prices stay high enough the answer is, you betcha.
If prices rise generally then lenders will want higher rates of interest to preserve the buying power of their money.
Will home sales really increase in 2011?
Freddie Mac projects a "5 percent increase in 2011 home sales over 2010, on a calendar year basis."
Really? Is that corrected for inflation?
This seems incredibly hard to believe. Why would home sales increase when the country has a massive backlog of distressed homes? Unless this inventory is reduced substantially the possibility of solid price increases--price increases above the rate of inflation--appear to be just about zero in many markets.
It would be great if Freddie Mac's predictions come true, but each time you pass a gas station you might want to look at such projections from the perspective that what we pay for fuel has a lot to do with jobs, inflation and mortgage rates.