NEITHER HIGH GASOLINE PRICES NOR HIGHER INTEREST RATES . . .
GRAPEVINE (recenter.tamu.edu) — Despite relentless rate hikes by the Federal Reserve and gas prices hovering around $3 per gallon, the U.S. economy continues to exhibit considerable strength, according to Real Estate Center Chief Economist Mark Dotzour.
Speaking to the state convention of the Texas Bankers Association, Dotzour noted, ”Future hiring expectations among small businesses and major corporations remain quite optimistic as we near the second half of 2006.”
Texas home sales continue to expand and home price appreciation rates are increasing in many Texas metro areas. He noted several risk factors that need to be monitored by prudent business decision makers:
* The Consumer Price Index is currently understated because it measures housing costs by apartment rents not house prices.
* High gas prices mean less discretionary income to spend at the movies and the mall.
* If the U.S. labels China as a "currency manipulator" and puts a 27 percent tariff on Chinese products, prices will rise, and all bets are off in the economy.
* Commodity prices are soaring, cutting loose from reality. Typically this signals massive inflation ahead. However, thousands of new hedge funds are actively speculating in all markets to try and make double-digit returns in an overcrowded single-digit investment market.
* A slowdown in mortgage refinancing will slow down consumer spending.
* A slowdown in home price appreciation will slow down consumer spending.
* Federal regulators are actively moving to rein in over-aggressive mortgage lenders.
* Corporations are flush with cash and need to invest it or spend it somewhere. As stocks shine, the luster on real estate will diminish.
* A flat yield curve indicates a slower economy is in the near future.
* If we stop or reduce the flow of immigrant workers to the United States, labor costs will have to increase.
(Source: Real Estate Center Online News. To subscribe, go to http://recenter.tamu.edu.)