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Domestic Signs Looking Up, but There’s a World of Worry

 

Breaking News: The Federal Housing Administration has issued a formal letter outlining the details of upcoming increases in the cost of mortgage insurance for FHA loans. The new effective date of the increase for new loan applications is April 9. If you are thinking of purchasing or refinancing, the time to act is now to beat the increase. Contact us quickly, as we are expecting a rush of applications. Do not wait until the last minute as there will be no guarantee that we can get last minute applications in to beat the deadline.

The economy produced 227,000 jobs in February, with an upward revision of job growth for December and January, and that is good news. The question is, what does that tell us?

Does it mean that the economy after all this time is producing job growth at a pace that will finally pull us into a virtuous cycle? Such a cycle would see positive segments of the economy supporting others. For example, as more people get hired, there are fewer defaults on home loans and therefore the shadow inventory of bank-owned properties starts to shrink. This would allow banks to loosen up a bit on lending standards, which will allow more Americans to purchase homes. In turn, that creates more jobs. The cycle continues.

During the recession, we were saddled with a vicious cycle and certainly a virtuous cycle is something for which we all have been waiting.

Although we could be at the beginning of this positive cycle, keep in mind that we are also not so far in that there are not risks to the downside. It is the world economy that provides the greatest risks at the present time. The economy of Europe is struggling and even booming countries such as China are expected to slow this year.

Many analysts are worried that this malaise will spread to our recovery and point to the fact that employment is typically a lagging statistic and is not a predictor of the future.

We would hope the opposite happens. America has been an economic leader during the past century. It is our economy that led the world into recession just a few years ago. That is why we hope that our strength can lift up other economies now.

From our perspective, employment and real estate are important sectors which have lagged during the first stages of the recovery, making this recovery slow and tedious. It is time for these “heavyweights” to show leadership so we can show the world.