Commercial PropertyRealty Times Outlook: Less Than Zero? Hardly!
Zero seems to be the key number in several areas of the economy. Not only are consumers saving less than zero, but a prominent stock analyst predicts zero earnings growth on Wall Street next year.
Are housing"s prospects less than zero, too?
Hardly. The last year there was next to zero growth in stock market earnings in 2002, housing took off on a bull run. If that happens again, that could mean home buyers and sellers are in for a return of a nationwide seller"s market as buyers scoop up property from coast to coast.
The Commerce Department calculated in August that the savings rate of Americans is less than zero, which it learned by taking the difference between after-tax income and all expenditures, including housing, food and clothing.
According to news reports, June was only the second month the rate was at zero since the monthly figure started being calculated in 1959.
Jean Chatsky, columnist for MSNBC wrote, that the savings rate doesn"t "take into account the growth in home equity or the amount plowed into retirement accounts like IRAs. A more holistic picture might in fact be a brighter one. But that doesn"t mean that the negative savings rate should be ignored."
The annual savings rate for 2004 was 1.8 percent; the last time the annual rate was lower was way back in 1934. That was the year Adolph Hitler became Fuehrer of Germany, Persia became Iran, and Alcatraz became a federal prison. It Happened One Night swept the Academy Awards, John Dillinger was public enemy number one and the nation was still in the throes of the Great Depression.
Something else happened in 1934 -- the Federal Housing Administration was created because so many people had lost their homes. In those days over two million construction workers had lost their jobs, mortgage terms were limited to 50 percent of the property"s market value and mortgage loans had to be repaid over 3-5 years with a balloon payment due at the end of the term. Only four in 10 households were owned, the rest were rented. The FHA"s job was to steady falling home prices and make sure homebuyers could get loans at terms that they could afford to repay.
In 2002, housing reached the third record year in a row of existing home sales, with homeowners being largely supported by generous loan terms, just as they were back in 1934.
But Morgan Chase"s global stock analyst Abhijit Chakrabortti told reporters in October that he thinks that a mix of higher inflation and interest rates, better returns on cash and no earnings growth means the stock market could be in for zero earnings growth next year. That could put consumers back in the frame of mind to invest in housing rather than stocks.
While some strategists disagree, with Chakrabortti"s prediction, most agree that higher inflation and interest rates will slow the economy down considerably, with profit increases coming in well below 10 percent.
Meanwhile, the Labor Department reported 56,000 new jobs created in October, and better news is that the national unemployment rate eased to 5 percent from 5.1 percent in September.
With more jobs, and a struggling stock market, Realty Times predicts that many investors will continue to put money into homes, where an improving rent market, particularly in low-to-middle income neighborhoods is increasingly short of inventory.