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MMG Annual Forecast 2011: What to Expect and Why!
By Mortgage Market Guide
The economy and housing markets have seen some rough times the last couple of years. But the good news is that last year we saw some stabilization – and 2011 should see us continue on the road to recovery.
To help you prepare for the coming year, we’ve put together an overview of what to look for in 2011. We start out by looking at the big picture and discuss the outlook for the overall economy, the stock market, and the all-important employment market. From there, we dig into what to look for in terms of the housing market, including home prices, the foreclosure crisis, compensation, new legislation that impacts the mortgage industry, and finally the all-important forecast for home loan rates in 2011.
Overall, the economy looks to have stabilized from the crisis situation a couple of years ago. Although we still have global economic and political concerns, particularly regarding the situation in Europe, the U.S. economy appears positioned for continued growth and strengthening. We expect that the U.S. economy will be moderately stronger this year, and will get an additional boost from Quantitative Easing 2 (QE2), as well as the recently passed Tax Package.
Over the past 5 quarters, Gross Domestic Product (GDP) in the U.S. has dramatically improved from where it was in 2008 and held on to those gains.
Looking ahead, we see the United States’ GDP finishing 2011 above where it ended last year – growing by as much as 3%. This is inline with other industry experts and friends we spoke to, like Knight Kiplinger, CEO of Kiplinger Publications and one of the most revered financial writers of our time. He agreed that he expects GDP to finish the year around 2.8%. Bob Weidemer, author of the highly acclaimed book “Aftershock”, told us he sees slightly more modest growth, perhaps around 2.5%, but still moving positively.
That growth won’t happen overnight, however. Instead, it will start out slow in the first half of the year, and pick up steam in the second half.
We see a portion of that growth coming from demand in other countries. Currently, the U.S. only derives about 12% of its Gross Domestic Product (GDP) from exports. As Knight Kiplinger said, “While that equates to a lot of money, it means that the U.S. relies less on exports than many other countries – and it means that there’s room to grow.”
One of the reasons for a growth in exports during the coming year is the declining value of the U.S. Dollar, as one of the major “non-stated goals” of the Fed’s Quantitative Easing program is that the U.S. Dollar will weaken. And we are already seeing U.S. exports tick up as the U.S. Dollar has weakened, because it makes our goods and services relatively less expensive to foreign buyers. The Fed would never outright say that this was a goal of QE2, as they have heavily criticized other countries such as China for acting similarly.
However, the bump in exports is good news for the U.S. economy as a whole, as well as individuals, because it sets the stage for growth while still allowing U.S. consumers to catch their breath. After all, the tough economic climate over the last couple of years has hit U.S. consumers hard, and has forced many Americans to reprioritize their family budgets to focus more on their savings.
Additionally, this will help large multi-national companies, which have a large influence on the economy, and in turn, the major Stock market indices. And stimulating our economy towards continued growth is the Fed’s main goal for QE2.
There is a flip side to the weakening Dollar, however, and that is that a weakening Dollar can have some negative impacts. For one thing, the US is an importing nation and a declining US Dollar will make imports more expensive. The softening Dollar will also hurt imports of capital – meaning foreigners investing money in US Dollar denominated securities. And as Bob Weidemer points out, “we need capital imports more than exports of goods.” Foreign investment in our Bond market is what has fueled relatively low interest rates, including home loan rates, for a very long time…and should foreigners start to shy away from purchasing our Bonds, rates would climb higher over time. Additionally, Oil is priced in US Dollars and if the “buck” weakens sharply it could cause oil and gas prices to rise.