While news events and comments on Tuesday brought to light the hopeful sentiments bouncing around credit markets, most of the news in housing still appears to be negative. Federal Reserve Chairman Ben Bernanke commented Tuesday that credit markets might have seen their worst moments. These comments were much in line with the sentiments of other central bank board members and leading credit market analysts.

In spite of the fact that housing and credit have mostly been intertwined during the economic struggles over the last year, they do not seem to be in synch in their attempts to reverse direction. It is highly likely, however, that if credit markets continue to improve, housing will follow. As lenders become more stable with regard to capital, and borrowers are rejuvenated based on confidence and low-rate credit, real estate investors and home buyers will reenter the market.

The Fed’s dramatic rate cuts have definitely giving property buyers’ greater opportunity to buy inexpensively. However, the cuts have done very little to help the record number of homeowners still struggling with foreclosures. A recent report from RealtyTrac, an online real estate foreclosure site, showed that foreclosures were up 65 percent during April, compared with April of 2007.

Foreclosure activity, which includes default notices, auction sale notices, and bank repossessions, affected over 243,000 properties. It is not surprising that foreclosure numbers are still on the rise. The current low interest rates have provided better opportunities for people in good financial condition to either obtain a low rate loan, or get out of a high one. However, for people too deep in mortgage delinquency and involved in the foreclosure process, the rate cuts offered little reparation. It could take several more months to essentially clear out all of the bad mortgage arrangements remaining from the sub-prime fiasco.

Although existing home sales have fluctuated a bit in the last several months, median home values continue to drop for most of the nation’s major housing markets. It is widely expected that median home prices will fall during 2008, a very uncommon occurrence. This spells trouble for people stuck with investment properties or looking to move right now. But, the good news for long-term real estate investors and homeowners is that growth is likely to redevelop at some point. Most analysts have suggested housing could pick up as soon as late 2008, and definitely by mid-to-late 2009.

Earlier this year, many economists suggested mid-to-late 2008 could be a very important period in the medium term outlook for the US economy. Housing, credit, retail, the dollar, oil, gas, and consumer prices all seem to be churning in an economic windfall with something bound to break at some point. Stocks, the dollar, credit, and housing seem well poised for a turnaround later this year. There are certainly no guarantees that things are headed in that direction, however, the cards appear to be lining up.

Stocks and the dollar have been taking bad news in stride and jumping at hints of positive news, a common signal that investors are anxious for good news. Since future sentiments are what drive financial markets are driven by, it would only take a few bits of moderately impressive data to validate investor hope and jump start the markets. Economists often argue as to whether financial markets drive consumer confidence, or whether it is the other way around. Often, it depends. It seems possible that consumer confidence might rise if typical Americans see investors collectively diving in.

Market Recap

The Dow was up 66 points to 12,898 on Wednesday as it looks to clear 13,000 again. The NASDAQ climbed a single point. A battle for control of the Yahoo Board is underway as some investors want the company sold to Microsoft. The dollar dropped a bit, but seems poised for another potential move up. Stocks were strong Thursday as the Dow climbed 94 points. The NASDAQ and S&P followed with gains of 37 and 14. Industrial output fell for April. Oil prices dipped a bit. Economic data for the data was moderately positive. The dollar held steady.

Neil Kokemuller
Thursday, May 15, 2008
11:00 PM EST

Neil Kokemuller is an Associate Professor of Marketing at Des Moines Area Community College in Des Moines, Iowa, USA. He has a MBA from Iowa State University.

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