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 The Economy: Like a Rock?

We are halfway through the first quarter of 2012, and the big question in everyone’s mind is whether the economy continues to grow from here, or does it slow down like it did during the spring and summer of 2011?

Remember, only a few months ago we were talking about the danger of a double dip recession. A stronger finish to the year ended that talk, but still many analysts have been predicting some sort of slowdown in 2012.

What could prevent such a slowdown and keep the economy on pace to strengthen through 2012? We have already introduced the “big three” factors we will be watching. Not necessarily in order of priority, these factors are employment, housing and Europe.

The numbers regarding employment are encouraging. First-time unemployment claims last week hit the lowest level in nearly four years and employment growth was strong in January. The first set of January economic releases thus far have been mixed, however the data on housing starts and first-time unemployment claims reported last week was very encouraging because of the importance of housing and jobs as two sectors of the “big three.” If the economy keeps producing job growth, then home sales will keep rising and housing will become a positive factor with regard to economic growth in 2012.

Economic growth is also the only factor that can pull Europe out of its crisis. All the austerity measures by themselves can’t pare down their deficits without growth. Therefore, the key to whether the economy will continue to grow from here is actually the economy itself.

Consider a rock rolling down the hill. Last year the rock hit a bump and slowed down. However, the faster the rock rolls, the less likely bumps will be able to slow it down. A stronger economy is self-sustaining.

We believe that the economy has reached an important juncture. If growth accelerates from here, it will be harder to stop the rock. The rock is not rolling downhill fast enough now to overcome all the obstacles, however we are not far from that happening and the first half of 2012 will be crucial in measuring the speed of the rock.

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Breaking News: The government budget for this year includes a hike in the cost of insurance for Federal Housing Administration mortgage loans. It is expected that this increase will go into effect shortly, however consumers who act quickly may have the ability to beat the increase. If you are thinking about refinancing or purchasing, time is of the essence. Call to find out if an FHA loan would benefit your financial situation.

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The U.S. housing market will begin to mount a turnaround this year, building toward a solid recovery in 2013, according to a forecast by the chief economist of a homebuilding industry trade group.

The outlook by National Association of Home Builders Chief Economist David Crowe calls for U.S. sales of new homes and single-family home construction to improve this year compared with 2011, when they hit record lows.

The forecast still leaves new home sales and construction well below levels of a healthy housing market, however. That reflects the severity of the industry’s downturn, and suggests the housing market could be years away from full health.

“I’m looking at 2012 as sort of a ramping event to get a much more solid recovery in 2013,” Crowe said in a telephone interview.

The economist, who gave his forecast at the trade association’s annual conference in Orlando, Fla., sees sales of new, single-family homes climbing 19 percent this year to 360,000. Next year, he expects those sales to rise a whopping 40 percent to 505,000.

Crowe’s outlook also hinges on unemployment staying below 8.5 percent and the economy adding more jobs. And he’s assuming that tight lending requirements will ease this year, enabling more homebuyers to qualify for financing. Source: Investors Business Daily