Norton on Real Estate
I had the opportunity to participate in a national telephone conference call hosted by economist Jeff Thredgold, who gave a presentation on his views of the U.S. economy for 2005 and 2006. What did Mr. Thredgold have to say? He is very upbeat, in my assessment. He would say he continues to be upbeat. He sees employment as being stable. He infers that 5 percent to 5.2 percent unemployment is probably as low as we can go because a 4 percent unemployment rate is a sign of an overheated economy. Some interesting demographics to come — such as only one in eight new entrants into the labor force will be white males. Females as a percentage have probably reached a peak. A majority of new entrants will be senior, 55 or 60-plus, most of whom will be part-time workers. The majority will be minorities, both legal and illegal, as well as refugees. Look to Europe over the past 10 years, and that is our future. Very interesting. Regarding interest rates, always near and dear to real estate people, he sees steady as she goes. The 30-year residential mortgage was 5.77 percent in 2003 and 5.78 percent in 2004. He feels it may rise to 6 percent in 2005 and maybe 6.25 percent in 2006, but if he is wrong he feels it is because the rates will in fact be lower. Let’s do a little math. A $200,000 30-year mortgage at 5.77 percent equals $1,170 a month (principal and interest). The same mortgage at 6.25 percent equals $1,231 a month. Not much of a difference. But 30-year mortgages are not the norm. Let’s look at a 20-year term. At 5.77 percent the monthly payment would be $1,406, while 6.25 percent would be $1,462. Still close, still manageable. But if interest rates were to jump to 7.5 percent, the monthly payment for a 30-year loan would be $1,398 and the 20-year loan would be $1,611 — an increase of $205 per month, or $2,460 per year, and an increase of $228 over the 5.77 percent rate, which would be $2,736 per year. So if Jeff Thredgold is right and long-term mortgage rates do not rise sharply, the housing sector should continue to chug along. The same should apply to commercial real estate as well. Therefore, I hope he is right! Jeff then spoke to the weakening dollar (ugh!). He maintains that things will be all right. He states unequivocally that the U.S. 10-year Treasury is still the most stable and the most liquid investment globally. Yes, the euro may be strengthening, but those nations with large currency surpluses will continue to invest in U.S. treasuries due to their stability and liquidity. As for trade deficits, according to Jeff, not all is lost. Look at Germany, the largest exporter in Europe with huge trade surpluses. So how come they have a 10 percent or 11 percent unemployment rate? Bottom line, the U.S. economy is doing fine and should continue to do so. What about stocks? Well, we ran out of time. Jeff’s next topic is “Around the World in 60 Minutes” on Feb. 18. To learn more or to register call 1-888-THREDGOLD (847-3346) or visit thredgold.com.