Economic Outlook & Real Estate

Excerpts from The Kiplinger Report:


Will housing's slump cause a recession?
* No. But it will slow growth a lot through next year, until the balance of supply and demand for residential property returns. Next year...2.5% economic growth TOPS, and it may well be closer to 2%.

Housing is delivering a triple economic whammy:
* A sharp, sudden drop in housing construction, financial strains on many homeowners' incomes and a major chill in consumer confidence.
* Energy prices remain the linchpin on whether the economy sinks or swims in 2007.
A big increase in costs of oil and other fuels would be too much for U.S. consumers to bear on top of the hit they're taking from housing.
* Most likely, oil prices have peaked and will start a slow easing after Labor Day. But supply disruption risks are rising as conflicts in the Middle East gain intensity.
* Average home prices will stay flat through about the middle of next year. By then, builders will have curtailed supply enough to allow the current overhang of about 300,000 houses nationwide to start to be absorbed by the market.
* Still, sellers will face a dismal spring, usually the best sales season.
* We see starts sliding to 1.7 million next year from 1.85 million this year. Population trends argue for an average of 1.8 million homes to be added annually, but builders surpassed that level in 2004 and 2005.
* Much of that surplus went to speculators, but the demand has vanished.
* Housing will play a big part in slowing job growth. Next year, net employment growth will slacken to an average of 117,000 a month.
* Home building and related fields...mortgage finance, furnishings, design, landscaping, etc...have made up 25% of overall job growth since 2002.

The housing cooldown will have a broader reach than expected just a few months ago. Back then, it seemed that the bulk of the downturn would be restricted to former boom areas, located mainly on the coasts. But sluggishness in some industries, especially autos, is taking its toll on some inland areas, notably Ind., Mich., Ohio and parts of Pa. and N.Y.

That doesn't spell a shift from a market correction to a crash. The market is adjusting, albeit very quickly, from an extended period of unusually robust activity made frothy by investment-led purchases. By late 2007, homeownership will resume its historical role as a relatively secure store of value that also provides shelter.

Strong global demand is putting a firm floor under oil prices, keeping them between $70 and $75 a barrel through Nov. at least.
* Of course, any new threat to supplies will produce sharp price spikes.
* Gasoline prices WILL start coming down after Labor Day, as usual.
* But motorists may hardly notice. In past years, pump prices fell about 15% between the end of summer and early Jan. This year, the drop will be about half that, to $2.75 a gallon, on average, from $2.95 now.
* Diesel fuel...down only about a dime, from $3.11 a gallon.
* Heating oil...up about 30¢ a gallon, on average, this winter from $2.80 this summer. That's about 25¢ a gallon higher than a year ago.
* Natural gas will be much costlier by year end as well, increasing to $10 to $12 per million British thermal units, from $7 now, as demand for electricity to heat homes puts pressure on scant supplies.

Although many large U.S. companies are flush with cash... Not all are prosperous. Public company bankruptcies are rising this year for the first time since 2001 and will keep climbing for years. Among the reasons: Higher interest rates, a cooling housing market and high energy costs will bedevil firms struggling to pay off debt.

HOW A NEW CAR PAYMENT REDUCES YOUR PURCHASE PRICE!

BUY THE HOUSE FIRST!

When determining your ability to qualify for a mortgage, lenders look at what is called your "debt-to-income" ratio. A debt-to-income ratio is the percentage of your gross monthly income that you spend on debt. This will include your monthly housing costs, including principal, interest, taxes, insurance, and HOA fees if applicable It will also include your monthly consumer debt, including credit cards, student loans, installment debt, and ..... car payments.

For example, suppose you earn $5,000/month and you have a car payment of $400. At current interest rates you would qualify for approximately $55,000 LESS than if you did not have the car payment. Even if you feel you can afford the car payment, mortgage companies approve your mortgage based on THEIR guidelines, not YOURS!

However, if you have not already bought a car, remember one thing. Whenever the thought of buying a car enteres you mind, think ahead.....Think about buying a home first. Buying a home is a much more important purchase when considering your future financial well being.

Do Not Buy The Car First -- Buy The House First!

Buying A Home Is A Good Investment!

As a general rule, homes appreciate about four or five percent in a year. Some years will be more, some less. The figure will vary from neighbohood to neighborhood and from region to region. Boulder County has generally seen much higher appreciation rates over the years.

Five perdent may not seem like much. Stocks can sometimes appreciate much more and treasury bills or bonds are a pretty safe return on investment.

Let's take a look at a property investment....

• If you bought a home for $200,000 with a 20% downpayment, your initial investment would be $40,000. At an appreciation rate of 5%, your home would increase in value by $10,000 during the 1st year. Not bad on a $40,000 investment!
• You are also making mortgage payments and paying property taxes. However, since the interest you pay on your mortgage and your property taxes are both tax deductible, the governments is essentially sudsidizing your home purchase.

Your rate of return on your home purchase investment is higher than most any other investment you could make!

Pikes Pike Bicentennial Celebration

July 14 - August 15

Original Pike documents from the National Archives will be on display at the Colorado Springs Pioneers Museum. This will be the first time these documents have been seen in this region since Zebulon Pike was here 200 years ago!

Pikes Peak was first seen by Zebulon Pike on November 15, 1806.

Many activities to celebrate are going on throughout the year.

Visit www.zebulonpike.org for more details.

ARE YOU READY FOR SOME FOOTBALL?

The first pre-season Broncos football game is just 8 days away!

Are you ready?

The game is at Detroit but will be televised on CBS.

Remember the time difference!

Don't miss a minute!

7:30 p.m. EDT from Ford Field