Dr. Frank Nothaft, the chief economist for Freddie Mac about the economy and housing in general and the Chicago Market in particular. Here are some highlights from his presentation and his comments from the discussion that followed.
The recovery will be slow but he doesn’t believe there will be a double dip. It will be slow because over the last 2 years the US lost 8.4 million jobs and at the GDP growth rate expected we should earn back about 2 million jobs per year. At the current rate of 10% unemployment, this will mean a 2 point improvement each year. – good – but not enough to suggest a steep and quick recovery. So employment will keep the recovery pace slow it will be a recovery.
On Fiscal Policy
As you may recall, in 2009 the government approved a massive stimulus to invest in the recovery...however, there is still half remaining to be spent. So we are seeing a recovery AND have some additional investment available to create jobs and provide credit.
On Monetary policy
Interest rates – people say – can’t get much lower but, according to Dr Nothaft we haven’t fully felt the effect of the decrease in rates. He believes that it takes 12 months for the effect of a 0 percent discount rate to be fully felt in the mortgage and other lending rates. So, even if the fed started to tick up the discount rate we have some time at these great mortgage rates. He stated that the interest rate should stay BETWEEN 4.75% and 5.25% for the next 12 months.
On Housing prices
Inflation is predicted to be low at about 2 ½ % per year and this means that while we have probably seen the bottom, we will continue to see low housing prices or at least very slow growth in housing prices.
This leads to the good news.