Recession is Unlikely

According to Giles Keating, Head of Global Research for Credit Suisse a recession in the United States is unlikely. While the U.S. economy is slowing down, fears of a market collapse are over-rated.

Below is an interview Joy Bolli conducted with Giles:

Joy Bolli: What is your take on the world economy at the moment?
Giles Keating: The world economy is not in bad shape at the moment despite the credit crisis. The latest data suggests there is a slowdown underway in the US and in Europe as well, which has hit a bit faster than expected. And, China and Asia are still booming. Even those slowdowns in Europe and America are looking unlikely to turn into recession, so the outlook at the moment is not unhealthy.

Is Switzerland also affected by this slowdown?
Well, Switzerland can't be immune because it is a big exporter, but overall I think the Swiss economy is looking pretty healthy. The likelihood is therefore that Switzerland will see a period of slightly slower growth, but the risk of it coming anywhere near recession are extremely low. Perhaps within nine months, or in even less time, we will see things accelerating again.

You mentioned Asian growth. How long can this growth be maintained in the wake of the US slowdown?
It looks, at the moment, that Asia will be relatively unscathed by the US slowdown. Given that we are not seeing the US go into an outright recession, and with US demand growth easing back a bit, the effect on Asia will not be overwhelming. In fact, it might help to reduce Chinese growth from almost 12 percent down to almost 10 percent, and that would still be a very rapid growth rate.

And how is that ongoing Asian boom impacting other regions?
The impact is profound. Throughout Asia, whether India, China or some of the smaller economies in the region, we are really seeing some of these countries becoming the power houses of the world economy. They are providing a lot of less expensive goods, which helps to keep the lid on inflation. They are also consuming a lot of raw materials and energy, which is pushing oil prices to high levels, as well as metals and food. That, of course, is bad for inflation and a problem that the rest of the world has to cope with. So, the growth is double-edged.

How should investors react to those rising commodities prices?
Commodities have been, and still are, in a long-term bull market, which could probably go on for a magnitude of another three to four years. Or perhaps even a bit longer. Of course there will be cyclical swings within that time and over the next two or three months, we might see a slightly slower period as a result of one of those swings. As a strategic matter, we do believe investors should have exposure to commodities. However, we certainly recommend that they do so through specialist funds, and we advise that they choose those funds pretty carefully. It is a matter of having a fund that is not too heavily weighted toward energy, which some are. Some are better diversified, and there are a number of technical issues to consider, such as the importance of roll-yield. Therefore, I recommend that investors take specialized advice to minimize the reliance on roll-yield in their commodity exposure.

Is there an inflation risk here?
At the moment, it looks as though the inflation risk is not great enough to prevent a Fed cut if it chooses to do so. The Fed and the other central banks must keep an eye on inflation, not least because of those energy and raw materials prices. Currently, those high resource costs don't seem to be feeding into other parts of inflation and this leaves the Fed free to cut rates again if they want to.

The markets have been rallying. Is this a trend that can last?
The equity markets have done very well since that correction was made in August. Since then, we have seen a strong rally and many markets are breaking new highs. I think that is due in part to the fact that for sustainable reasons, the valuations are still not particularly high and because the economic growth outlook, as we discussed, doesn't look bad. We've had a little bit of a slowdown, but overall it’s looking pretty good. In particular, emerging market equities have rallied as well as companies in the developed world that are exposed to the emerging markets. We think that can go on a bit more. It won't be a straight line, of course, but we think the valuations are still attractive and that the growth stories are still there. In addition, there is still liquidity there and a lot of investor money, and that combination can drive prices up further.

Looking to the US, its trade deficit has been falling. What does this reflect?
The decline in the trade deficit is an interesting development because people have been very worried about it for many years. What is happening now is that with the US economy growing slower at a time when the rest of the world - especially Asia - is growing rapidly, a good combination has been created for bringing the deficit down. The slower growth of the US consumer keeps the import growth down, and that strong growth abroad helps to boost exports. And the dollar's weakness is also a bonus because it helps to make US production attractive and competitive, and that further keeps the trade deficit down.

Do you think that the dollar weakness is set to continue?
I think it will. We are not expecting the dollar to see a really big decline, but we do think that the dollar could trade toward the 1.45 mark against the euro. Against the yen, the dollar might see a bit of short-term strength. Although as we get into next year, the dollar could start to weaken against the yen again along with some of the other Asian currencies. So, for the time being it’s a picture of the dollar staying pretty soft, however, the risk of having it collapsing isn't that high.

If the dollar is going to stay weak, is gold a good alternative?
I think gold is beginning to look a little bit expensive. As far as one can measure, it is at a high-level by historic standards when adjusted for inflation. We have been seeing ranges above 730 dollars per troy ounce, and those ranges are more of a holding area rather than a buying one. We do think that some of the other precious metals, such as silver and platinum, can also offer significant value. Those investors looking at precious metals out of concern about the dollar should place less of a focus on gold and more of a focus on some of those other precious metals.

What is your forecast for the bond market?
Quite a question mark remains for longer-dated bonds in the 10-year area and we are not really advising investors to go there. Certainly as we look forward several months, and as the economic outlook becomes clearer, we think there might be some upward pressure on some of those longer yields. However, for the shorter-dated maturities of two to four years in many of the major markets we feel reasonably comfortable with investors having a kind of core holding. Again, we don't think by any means that investors should aggressively hold fixed income rather than equities. We think it is equities that will outperform, but it is good to have an element of fixed income in a portfolio as a balance and that is the maturity range to have.

Can you sum up what all this means for investors?
It is still a healthy environment for investors. We believe that equity portfolios can do pretty well and we believe the credit problems have not gone away, but we do believe they are beginning to subside. There may be one or two nasty announcements yet to surface, but we think the larger parts of these announcements are behind us. It is a world in which the global economy seems in reasonable balance. Of course, there are always risks, including the risk of inflation from that very, very rapid growth in Asia, or the risk of the US or European economies slowing down too much, but at this moment we think that those risks are containable. This leads us to this healthy view for the equity markets, although we are cautious on the dollar and not so excited by the fixed-income world at the moment.

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NAR: Recovery for Existing-Home Sales in 2008

A modest recovery for existing-home sales is expected in 2008 as the impact of the credit crunch subsides, while pending home sales indicate near-term stability, according to the latest forecast released here today at the National Association of Realtors® Conference & Expo.
Lawrence Yun, NAR chief economist, said the housing market will improve from a steady unleashing of pent-up demand, and from a wide abundance of safer mortgage products. “The level of pent-up demand reaching the market next year is a bit uncertain, and it is possible for even higher home sales activity than we’re forecasting if buyers regain their confidence about the long-term benefits of homeownership. Over the near term, home sales are likely to be fairly flat as the lingering impact of the credit crunch filters through the system through the end of the year.”
Existing-home sales are projected at 5.67 million this year, edging up to 5.69 million in 2008, in comparison with 6.48 million in 2006 which was the third highest year on record. Existing-home prices are expected to decline 1.7 percent to a median of $218,200 for all of this year and hold essentially even in 2008 at $218,300.
“Some markets are still going strong, such as Austin and Raleigh, while others are showing early signs of recovery, like Denver and Boston. However, a vast portion of the nation’s mid section is underpriced in relation to income, and prices in some markets could rise notably with good local job gains,” Yun said.
“Contrary to perceptions, conventional mortgages are widely available at favorable interest rates for the bulk of home buyers,” Yun said. “The pricing and availability of jumbo mortgages has improved, and FHA loans for home purchases – up 58 percent in the third quarter – are replacing subprime mortgages to serve the needs of low- and moderate-income buyers.”
“Home buyers in it for the long haul nearly always come out ahead in building wealth. Given the leverage in purchasing a home, the average return on a 5 percent downpayment over 10 years is usually three to five times greater than stock market returns,” he said. “When people compare investment returns, they often overlook the power of leverage in the housing market.”
Yun said a $10,000 downpayment on a median-priced home, at a typical appreciation rate of 5 percent, would be worth $110,000 after 10 years. That same amount invested in the stock market for the same amount of time, assuming 10 percent annual appreciation, would be worth $23,600. “That’s why housing is the best long-term investment most families ever make – the longer you own, the better your investment,” he said.

Selling your home during the holidays?

The holidays can be a great time of year to sell your home. While many real estate agents advocate waiting until February to put a house on the market, statistics from the North Alabama Multiple Listing Service (NALMLS) show November and December to be stronger selling months than January and February. In 2006, the average number of homes sold per month was 1,068. There was only a slight decrease in sales during the holidays, with 931 homes sold during November and 915 sold during December. The true decline in sales is actually during January and February, when people are taking time to recharge from the holidays. January 2006 saw a 31% decrease in sales, with 734 homes and February was just under December with 914 homes sold. Sales of existing homes accounted for 91.4% of sales in November and 91.8% of sales in December, as sales in new home construction.

The advantages of putting your house on the market during this time of year can oftentimes outweigh the disadvantages. During the holidays, sellers will not see as much traffic from people who are “just looking.” Buyers that are looking tend to be more serious, and they have more time to shop together, which is an advantage over other times of the year. Sellers may get dismayed easily, as a result of the slower traffic; however, they should keep in mind that it’s the quality of buyers versus the quantity. In addition, while families with children often prefer to wait until summer to move in order to avoid relocating during the school year, the break between semesters is a convenient time for moving as well. For both buyers and sellers, an advantage to holiday real estate transactions is that real estate agents, as well as lenders, home inspectors, appraisers, and title companies, have more time to spend with clients than at busier times of the year.

Homes that are decorated for the holidays can move buyers to look past any flaws in the home and imagine themselves living in the house. An important tip for sellers is to be tasteful in holiday decorations, as there is the potential for alienating buyers with overwhelming accessories.

The biggest problem sellers face during the holidays is going to be the stress of putting a house on the market, combined with the stress that normally accompanies this time of year. It is of the utmost importance that you keep your home immaculate so it shows well to prospective buyers. As a result of this stress, listing a home during the holidays is not for the faint of heart.

The important thing to remember when you are contemplating whether or not to sell your home is your motivation. If you need to move, regardless of the time of year, it’s always a good time to put your home on the market. If you are contemplating putting your home on the market “just to see what happens,” I would advocate that you wait until you are truly motivated.

What do a Scottish Play and the Boogieman have to do with Real Estate?

Unless you have experience as an actor, you may not be aware that it is thought to be bad luck – really bad luck – to speak the name of one of William Shakespeare’s most performed plays inside of a theatre. Productions of Macbeth have been plagued with over 400 years of unmitigated catastrophes, so much in fact, that unless actors are rehearsing or performing the play, quoting it is expressly forbidden and even the mention of the title is thought to bring disaster. Actors will instead call it “The Scottish Play” (as it is set in Scotland) and refer to the title character as “The Scottish Lord.”

The play is believed to be cursed, and while I don’t necessarily buy into it, the evidence presents a pretty good case. The night of the play’s first performance in 1606, the actor playing Lady Macbeth became inexplicably feverish and died backstage, forcing Shakespeare himself to fill the role. In 1672, during a performance in Amsterdam, the lead actor substituted a real dagger during a fight scene on stage, and killed another actor in full view of the audience. During an 1849 performance, 31 people were trampled to death when a riot broke out in the theatre. On April 9, 1865, Abraham Lincoln brought a copy of the play with him aboard a riverboat, amusing passengers by reading aloud passages dealing with the assassination of one of the characters. Later that week, John Wilkes Booth assassinated Lincoln in Ford’s Theatre. In 1937, during a rehearsal of Macbeth, a 25-pound weight fell onto the stage, barely missing actor Laurence Olivier. Three actors died during a 1942 production of the play, and the costume designer committed suicide. Charlton Heston suffered severe burns on his legs when his tights caught on fire during a performance in 1953, due to the fact that they had been “accidentally” soaked in kerosene. At the Metropolitan Opera in 1988, a production of Macbeth was cancelled at intermission when an audience member plunged to his death from the top balcony into the orchestra pit.

The legend surrounding the curse states that Shakespeare used actual Wiccan incantations in the play’s text, thus angering evil spirits. If someone quotes “The Scottish Play” inside the theatre, or refers to it by name, there are steps of recourse the offender must take, which include spitting on the ground, turning around three times, and reciting a line from Shakespeare’s Hamlet, “Angels and ministers of grace defend us!”

It may sound odd, but actors get very paranoid about this curse, and theatre accidents are often attributed to the curse of that Scottish play. It’s not illogical to assume, however, that the paranoia more than the curse may cause such accidents to occur.

Now, by this point, 476 words into the article, you may be wondering what this all has to do with real estate. This paranoia and fear surrounding the curse of Macbeth has resulted in some serious accidents. Much the same way, the paranoia and fear surrounding the current real estate market can be dangerous. I’d like to talk about a word that makes real estate agents (and economists, and investors…) a little paranoid and scared, the “R” word. That’s right, Recession. It’s being used a lot in the media lately, without much quantitative substantiation to support the claims.

The very existence of this word is a Catch-22. The first speculative pundit to mention “recession” should be beaten, because once its brought up, the conversation goes like this:

News Anchor 1: Well, looking at the polls, the Republicans/Democrats/Purple People-Eaters are gaining speed against the incumbent party. What would really trip up [insert incumbent candidate/party name here] is if we headed into a recession…
News Anchor 2: You really think a recession is possible at this point? I mean, the economy is doing so well…

Sooner or later, news broadcasts start off saying things like, “We’re starting to hear a lot of talk about recession…” Suddenly, all this recession-talk in the news has people scared, and little things (i.e. dips in the stock market, a bad month or two in the housing market) have consumers fearing that we are indeed going into a recession, just like everyone says! Consumer confidence suffers, people stop spending money, and BAM! – recession¹ .

If my Macbeth analogy didn’t quite do it for you, maybe this next example will: Have you ever told a seven-year old a horror story right before bed? I found that if you want to guarantee a child will not go to sleep, telling them a horror story about the boogieman will pretty much do it. They lay awake in bed, thinking about your story over and over again, until they run out of their room, convinced they saw a monster in their closet. I think this is a fairly decent analogy, except in this example, the media is the babysitter, you and I are the seven-year old kid, and the fear of a recession is the boogieman. Whether there’s a monster in the closet or not, people get scared and run out of their bedroom (read: stop buying houses, pull their money from investments, etc.). This is how fear of a recession, causes a dip in consumer confidence, which leads to decreased spending (because people are scared), which triggers an actual recession² .

This is ridiculous. Let’s look at the GDP growth for 2007: 1st Quarter: +1.3%, 2nd Quarter: +3.8%, 3rd Quarter: +3.9%.
I’m not seeing a recession yet.

It is your job as a real estate professional who is armed with actual knowledge to shine your flashlight into the closet and show your clients that there is no boogieman hiding in there. If all else fails, the next time you hear someone use the “r” word, from here on out labeled as “the word of which we will not speak,” spit on the ground, turn around three times, and start reciting lines from Hamlet.





¹ At this point, the author would like to acknowledge the use of the slippery slope rhetorical fallacy for illustrative purposes. A recession is defined as a negative growth in the GDP for two or more successive quarters in year. No, recessions don’t happen if the NASDAQ falls two points on a Wednesday.

² See above footnote. Seriously, folks, just making sure my bases are covered. You cannot trip and fall and cause a recession (although, in his day, it might have been possible for Allen Greenspan to trip and fall and cause one…).

U.S. Macro Outlook – Still Moving, but Vulnerable

From the Mark Zandi over at Moody's Economy.com:

The economy remains resilient to the ongoing subprime financial shock. Growth is slowing, but the sturdy 166,000 October payroll job gain suggests threats to the expansion are receding. Recession odds have fallen to less than one in three, from a peak above 40% during the height of the financial turmoil.

Recent confidence surveys indicate that businesses are nervous, and hiring less aggressively. Yet aside from those in housing-related sectors they aren’t worried enough to lay off workers. Investment is also sturdy, particularly in commercial structures such as office buildings and hotels. Businesses are loath to cut expansion plans given record profit margins and healthy balance sheets. Earnings growth has slowed sharply, but at least so far, firms are gracefully weathering the financial turmoil.

Great insight, Mark! It's so nice to hear an honest assessment of the current market situation, with a nod to the fact that consumer confidence is the real concern here!

I remain steadfast in my conviction that if everyone would stop crying about the "collapse" of the housing market, the economy will continue to progress in normal market-cycle fashion.

Market Comparison Exercise

Market Comparison Exercise¹

A home with a market value of $188,000² in Huntsville, Alabama would be expected to cost approximately…

$206,800	in	Mobile, AL
$210,560	in	Nashville, TN
$289,520	in	Atlanta, GA
$552,720	in	San Diego, CA
$567,760	in	Miami, FL
$718,160	in	Washington, DC

¹Resource: Coldwell Banker’s Home Price Comparison Index
²Average Huntsville, AL sales price year-to-date according to NALMLS

Freddie Mac Primary Mortgage Market Summary

Freddie Mac (NYSE:FRE) released the results of its Primary Mortgage Market Survey® (PMMS®) in which the 30-year fixed-rate mortgage (FRM) averaged 6.24 percent with an average 0.4 point for the week ending November 8, 2007, down from last week when it averaged 6.26 percent. Last year at this time, the 30-year FRM averaged 6.33 percent. The 30-year FRM has not been this low since the week ending May 17, 2007, when it averaged 6.21 percent.

The 15-year FRM this week averaged 5.90 percent with an average 0.5 point, down from last week when it averaged 5.91 percent. A year ago, the 15-year FRM averaged 6.04 percent. The 15-year FRM has not been this low since the week ending May 10, 2007, when it averaged 5.87 percent.


Primary Mortgage Market Summary

November 8, 2007

	30-yr	15-yr	5/1-yr ARM	1-yr ARM
Average Rates:	6.24%	5.90%	5.89%	5.50%
Fees & Points:	0.4	0.5	0.5	0.6

*Freddie Mac's Primary Mortgage Market Survey® (PMMS®) surveys lenders each week on the rates and points for their most popular 30-year fixed-rate, 15-year fixed-rate, 5/1 hybrid amortizing adjustable-rate, and 1-year amortizing adjustable rate mortgage products. The survey is based on first-lien prime conventional conforming mortgages with a loan-to-value of 80 percent. In addition, the adjustable-rate mortgage (ARM) products are indexed to constant-maturity U.S. Treasury rates and lenders are asked for the both the initial coupon rate and points as well as the margin on the ARM products.

Chart of the Day

More proof that the market is in a disastrous condition – wait – five-year up trend? The market is at an all-time high? Where is this in the newspaper?

Thanks to our friends over at Chart of the Day for such great information!

Can't get enough real estate news?

There are some amazing sites out there regarding real estate. You could waste hours on these sites and even longer finding them. That's why periodically, I'll provide links and reviews of these sites for you.

First up: IntoTheBox.tv

IntoTheBox started in September, and provides daily videos (they are amazing! Daily? Really?) as well as a blog to discuss real estate in New York City. My favorite so far? An analysis of a marketing campaign for an apartment that claims, "If God had an apartment, this would be it."

While the Huntsville, Alabama market is certainly different from NYC, I think everyone can get some daily enjoyment from the videos and blog!

The Politics of Real Estate

If you listen to the news lately If you’re capable of breathing, you know that we’re in end times. The economy is in the toilet, and the value of the dollar is so low, people are using it for kindling in their fireplaces. The real estate market is in such a state that realtors are jumping to their deaths out of the windows of their open houses, and we’ve all heard the story about the couple in Pittsburg that is offering a refund to anyone who buys their house upon the couple’s death. It’s bad, it’s bad, it’s bad.

What can we do? Vote for Hillary in 2008. Or Obama. Or McCain. Or Giuliani. That’s right, the “It’s the Economy, Stupid” game gets played close to every major election, which would include every presidential election and every midterm election that could possibly change the make-up of Congress. Here are the rules: You and your friends are not in power. Convince everyone that things are bad, oh so bad. Then tell everyone that it’s the fault of the people in charge. Promise everyone that if they vote for the cool kids, things will get better. Lather, rinse, repeat – every election cycle.

Essentially, political candidates tell the public, “It’s been bad, I’ll make it better.” It’s how Bill Clinton won the presidency in ’92, it’s how the Republicans won back Congress in ’94 – This game is so played, it’s how Franklin Delano Roosevelt beat Herbert Hoover in 1932 (remember the song “Happy Days Are Here Again?” Roosevelt’s campaign theme song.)

How do you do this if the economy isn’t actually bad (after all, FDR didn’t have much of a hard time proving the economy wasn’t doing too well under Hoover – Great Depression anyone?)? Do you unplug all the computers on Wall Street? Do you bribe Ben Bernanke (Chairman of the Fed) to increase interest rates to 20 percent? Do you hold all of the Fortune 500 CEOs hostage and demand a ransom of $50 trillion be sent to a cover organization in Kuala Lumpur? No, there are much easier ways to affect the economy without having to spend a single dollar (it allegedly won’t buy you much anyway).

Regardless of the actual economic situation, if you continually tell everyone that things are bad, eventually they start to believe it (think of the American public like a teenage girl with low self-esteem). When the public starts to believe things are bad, consumer confidence goes down. When consumer confidence goes down, people start to spend less money. According to the Mortgage Banker’s Association, consumer spending comprises 70% of the GDP. This “let me hoard all of my food for the long, cold winter ahead” mentality has a real and measurable effect on the economy. It’s gonna be a hard-candy Christmas, kids.

As people get scared, they stop spending money on luxuries and focus only on the necessities. That’s why people aren’t buying houses, and that’s why I have to stand in line for 20 minutes every morning to get my five-dollar coffee at Starbucks®. Wait. That can’t be right. In a bad economy, people don’t drink Starbucks® because they are saving money for more important things like bread. In a bad economy, people leave their SUVs strewn on the interstate because they cannot afford to buy gas. In a bad economy, people don’t even watch television, because they can’t afford basic cable – they read books. In a bad economy, people don’t buy iPods or iPhones, and they invest in sensible commodities instead of intangible products like Google (debuted in 2004 at $85 a share; currently trading at $739.82).

Before you buy into the Armageddon rhetoric that has been manufactured to supplement the current election cycle, ask yourself the following questions:

1. In light of the “current economic conditions”, have people stopped driving SUVs/watching TV/consuming extremely overpriced coffee-style beverages?
2. Are economic conditions so bad that you notice a dearth of Harvard MBAs that can’t find jobs because the Fortune 500s stopped hiring?
3. Rather than hearing conversations that start with, “Did you see Dancing with the Stars last night?”, do you overhear more conversations in which people say, “The fourth time I read War & Peace just shed so much light on Tolstoy’s theme of the irrationality of human motives”?

If all else fails, just hold out until January 2009 – that’s when the newest occupants of the White House and Congress will be singing, “Happy Days Are Here Again.” In the meantime, you can actually do something to affect the economy. Remember all that talk about consumer confidence? You have the power to affect it. Get out there and start building it! Yes, buying five-dollar coffee is one way, but the best way is to contact your sphere of influence and tell them what’s really going on! In your Holiday letters to friends and relatives, tell them about the great deals they could get as investors in this wonderfully undervalued market! This real estate market is like the quiet guy in high school – no one’s interested until the Head Cheerleader develops a crush on him – suddenly, everyone wants a piece. The Huntsville real estate market is a well-kept secret that you’d like to let people in on, so they can get the deals before the mad rush (read: BRAC).

If consumer spending is 70% of the GDP, and spending is down as a result of low consumer confidence, all we need is a little attitude adjustment to make a huge change. You can make this change happen!

Economics 101 - What is GDP?

The growth of an economy is measured in terms of an increase in the size of a nation’s economy. A broad measure of an economy’s size is its output. The most widely-used measure of economic output is the Gross Domestic Product, abbreviated GDP.

GDP is generally defined as the market value of the goods and services produced by a country. It is one of the primary indicators used to gauge the health of a country’s economy. Strictly defined, GDP is the sum of the market values, or prices, of all final goods and services produced in an economy during a period of time. In short, everything produced by all the companies and all the people in a given country (i.e. the United States).

There are three important concepts to note with regard to this definition:
• GDP is a number that expresses the worth of the output of a country in local currency.
• GDP tries to capture all final goods and services as long as they are produced within the country, thereby assuring that the final monetary value of everything that is created in the country is represented in the GDP.
• GDP is calculated for a specific period of time, usually a year or a quarter of a year.

While there are many ways to calculate GDP, the most common approach to measuring and understanding GDP is the expenditure method:

GDP = consumption + investment + (government spending) + (exports – imports)

Usually, GDP is expressed as a comparison to the previous quarter or year. For example, if the year-to-year GDP is up 3%, this is thought to mean that the economy has grown by 3% over the last year.

As you can imagine, economic production and growth, what GDP represents, has a large impact on nearly everyone within that economy. For example, when the economy is healthy, you will typically see low unemployment and wage increases as businesses demand labor to meet the growing economy. A significant change in GDP, whether up or down, usually has a significant effect on the stock market: a bad economy usually means lower profits for companies, which in turn means lower stock prices. Investors really worry about negative GDP growth, which is one of the factors economists use to determine whether an economy is in a recession.

How does GDP affect the US economy?

Investors look at GDP growth to see if the economy is changing rapidly so they can adjust their asset allocation. In addition, investors compare country GDP growth rates to decide where the best opportunities are. The Federal Reserve (Fed) uses the GDP growth rate as one of the indication of whether the economy needs to be restrained or stimulated.

How does GDP affect real estate?

If the GDP growth rate is speeding up, the Fed may raise interest rates to stem inflation. In this case, homeowners would want to lock in a fixed-rate mortgage, because they know that an adjustable-rate mortgage will start charging higher rates next year.