With all the euphoria over rising stock prices and increased home sales, it would seem that everyone is jumping upon the recovery bandwagon. Despite the fact that job losses have slowed, in reality the economy is still really sick and recoveries do not take place in a straight line. Many are still concerned that we will experience a "double dip" in which the economy will fade again before it recovers.
Why is this so? The reasons vary, but let's pick out a few of the more major arguments. First, it is not expected that consumers will start spending with an unemployment rate of just under 10.0%. We can goose consumer behavior with programs such as "cash for clunkers" and the $8,000 tax credit for home purchase, but we may just be borrowing from future purchases.
Next, there are many foreclosures still to reach the market and home prices will henge on the volume. This will challenge the housing recovery, especially if the tax credit is not extended. Finally, many economists feel that the weaker dollar and government borrowing will force interest rates higher and thus will slow the recovery. On the other hand, we should point out that if indeed the recovery does falter, this would put downward pressure on rates. That is why we still have a lot of potential for volatility going into the Fall.
This volatility could affect all of the markets: commodities, stocks and rates as the markets try to sort out what is happening. While a double dip is not a certainty, we would not be surprised to see an economic recovery which is characterized by a series of hesitations much like a car engine which is starting in sub-freezing temperatures.
Aaron Bruenger
Home Mortgage Consultant
Gorman & Gorman Home Loans
1540 E. Primrose
Springfield, MO 65804
Office: 417-889-1920
Mobile: 417-987-6373
Fax: 417-889-1970
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