Happy New Year to all of my Real Estate Partners!

2008 will be the best year in Real Estate in many years. I know...you wonder what I'm drinking! I am stone cold sober when I say that. Here is why.

Since Spring of last year, I have been saying to you all that for the economy to be healthy, we need to have a healthy Real Estate market. It was my very strong belief that Ben Bernanke and company would be jumping in before the fourth quarter to stimulate by lowering the Discount and Federal Funds Rates. Furthermore, I said that mortgage rates would need to fall to historical lows for buyers to start poking around.

The truth is that the Feds are in the game big time. They have lowered both rates at every meeting since the August 17^th surprise Discount rate cut of ½ %. They will meet again on January 30^th and most likely will cut again. Even though oil has briefly pierced the dreaded $100 per barrel level and evidence of inflation in other areas is apparent, the subject of inflation is nowhere to be seen in recent statements by the Fed. Why is that? Are they no longer concerned? The answer, in my opinion, is that their concern is primarily in watching signs that we are headed into recession. Up until recently, employment numbers pointed to a very resilient work force which seemed to make the probability of recession less and less. Then came the employment numbers of Friday!

The consensus was that there were 70,000 new jobs added in December, a month that traditionally includes holiday hiring numbers. Wall Street was shocked to hear that the number was just 13,000 (the smallest gain in 4 ½ years!). Furthermore, it was expected that unemployment would rise to 4.8%. Instead, the number was a staggering 5%. The Dow Jones Industrial Average closed today at 12800 which represents a loss of 750 points since the "Santa Claus Rally" of Christmas Eve. The result has been the biggest Mortgage bond rally in years! This means that mortgage rates have dropped close to historical lows as of today!

Wall Street is finally coming to grips that the Housing Market is bringing other sectors closer to recession. Think of the countless millions of dollars that will not flow into the economy as lending gets more expensive and cash out refinancing that a short time ago was easy is being discouraged with higher rates and costs. Equity in homes is dropping which, is also a factor keeping consumers from money they used to count on to pay debts.

Now comes some good news. Mortgage rates have been falling at a pace not seen since 2002. Many home owners could not afford to give up their low interest rates to move. That excuse is gone as rates have fallen well below 6% and could continue to fall. Watch the 10 year treasury bond yield. While rates are not directly affected by this instrument, mortgage bonds have been heading the same direction. If stocks continue their trend, money flows to safety of bonds. This pushes rates down!

Sub-prime lending and Real Estate has propelled this economy toward recession. During the last twelve months, Bernanke and the Feds have continuously stated that there a few signs that the "housing slump" is showing effect in other sectors of the economy. It was extremely naïve to believe that it was not inevitable that would not be the case. The irony is that if we do hit a true recession, safe money will not be in stocks. It will be in bonds and...REAL ESTATE! That which propelled us toward recession just could be the thing that helps bring us back.  

Remember what happened in 2001? We experienced some of the best Real Estate years ever after that recession. Now, I'm not counting on that kind of demand this year but I do expect to see a noticeable increase in Real Estate demand by the end of 2008. Be ready for that opportunity by setting the groundwork now. Contact as many of your past clients as possible to tell them what you believe will happen in our economy. This is an issue that hits everyone personally. They will be glad to hear from you.

Until next time, I wish you a very healthy, happy, and successful new Year.  Rick