Market Watch – Jan. 2004

As we usher in the New Year, we can look for continued good news about interest rates and home sales in Cobb County, North Fulton and Cherokee, mixed with increased concern about unemployment numbers nationwide, causing economic forecasters to believe that 2004 will be a balancing act in the real estate sales arena, both locally and nationally.

Currently, interest rates are on the move downward again and the Federal Reserve is not expected to increase these rates for at least the next six months. Productivity in the U.S. continues to grow, keeping inflation in check. While all of this is good news for interest rate watchers, it paints a gloomy unemployment picture. To better understand, consider this: The economy is beginning to grow but productivity continues to rise, which is slowing job growth. In fact, many economic forecasters do not see the employment picture improving until 2005. Because of such, 2004 could require some juggling in the in real estate sales, with buyers and sellers forced to compensate for this uncertainty.

On one hand, the unemployment rate continues to cause concern; on the other hand, mortgage interest rates are expected to remain at current levels and may even go lower over the next 60 days. This push to lower interest rates may push housing sales up in the first quarter in the Atlanta area after several months of declining sales. (Housing sales have fallen about 10% over the past several months in the Atlanta area and housing prices have continued to show a slight decrease since the beginning of 2003.)

The “buyer / seller” arrow is now leaning towards a “buyers” market for the next several months. The “hot” price range continues to be the $250,000 to $400,000 range. However, we still see strong activity in the first-time homebuyer range of $150,000 to 210,000. The upper end of the market continues to lag but should begin to pick up some steam as more and more signs point to the fact that the economy is beginning to grow.
Furthermore, the upper end of the market will more than likely follow the ups and downs of the Dow Jones. This said, if the Dow can break 11,000, we should expect the upper end of the market to follow suit with appropriate gains.

Interest Rate Forecast for the Next 90 Days:

Look for 30-year fixed rate mortgages to retest the 5.50% level for the first time since last summer and fixed rates staying below 6% though the first quarter of 2004. Mid-range ARM‘s (5-year) should continue to stay well below 5% through the first quarter of 2004 and the 6-month Libor interest only loans should continue to stay below 3.5% through the first quarter of 2004. Overall, look for rates to remain stable to slightly lower over the next 90 days, with this stability sparking increased home buying activity in the first quarter of this New Year.