Ouch, here we go again????...The stock market is taking it on the chin this week, especially on Wednesday and Thursday in which the market posted the biggest losses so far this year. Is it time to panic? I don’t believe so.
One of the reasons for the stock market declines is that Europe is once again back in the picture as economic data reports from the other side of the Atlantic are continuing to show signs that the European economy is slowing down. Before we were dealing with the threat of European countries defaulting on debt, this time around it is simply that their economy is slowing. Because we exist in a world that is a global economy that is all connected, whatever happens in Europe will impact the U.S.
Additionally, in the U.S, we once again are dealing with Congress’s inability to play nice in the sandbox and they are pushing the country to the brink of major funding cuts because they still cannot come to an agreement on spending cuts. Although Congress has the power to pass another piece of legislation that will prevent the across the board spending cuts that will occur on March 1st, right now they are not even discussing it so the odds that the cuts will happen grows with each passing day. The real drop dead date for Congress to take action is March 27th. That is the day that the current government funding bill expires, and if the government doesn’t have a new spending bill in place, the government will shut down.
The bright spot in the U.S. economy continues to be housing, however even that is heading into some tough times once again. Existing home sales increased .4% in January which continues the growth trend. However, that direction will more than likely reverse itself in the coming months because housing inventory is at a 13 year low. There are not enough homes for sale compared to the demand. This is once again driving prices higher in certain areas of the country and simultaneously mortgage rates have been creeping up. Ultimately this will reduce home affordability.
The biggest bright spot in housing this week is that there has been a large increase in housing permits which means that home builders plan on breaking ground to construct homes that will invariably have high demand and assist in compensating for the lack of existing homes available for sale.
This week’s report may sound a little more doom and gloom than we have seen in a while, however I want to leave you with some positive thoughts. There will be good weeks and bad weeks of economic trends. Right now we are in a slightly negative cycle but the fact that real estate demand remains high and that is very promising. Housing is the key to our economy in so many ways. As long as people are willing to enter the housing market, that holds great promise for the future.
Tuesday is a big day for housing reports. Stay Tuned…
• Tuesday February 26th – FHFA House Price Index, S&P Case –Shiller Home Value Index, and New Home Sales
• Wednesday February 27th - MBA Applications and Existing Home Sales
• Thursday February 28th - First Time Jobless Claims and GDP
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