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Real Estate Guide 2007
2007 overview
The real estate market was bed-ridden last year but 2007 brings new hope the market will get back on its feet.
2007 Overview
Rising consumer confidence boosts the market
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There are some pockets of the country that aren't following the national trend. For example, "in the Midwest, they've just experienced job losses in the last year," says Porter. Unsurprisingly, "confidence is the lowest in that part of the country," he says.

But for the most part, analysts expect the national labor market to remain strong and interest rates to remain stable, meaning consumer confidence isn't expected to take a nosedive anytime soon.

More difficult to predict are the noneconomic factors that can play a role in consumer confidence levels. Major geopolitical events such as Hurricane Katrina and the beginning of the Iraq war are examples of major geopolitical events in which consumer confidence dropped even though economic factors were good.

But even if a major disaster or tragedy shakes consumer confidence, experts say such events don't typically create lasting effects. "The rule of thumb is that if there are no economic repercussions, confidence will bounce back to previous levels within two to three months," Franco says.

Words of caution
However, some experts caution against assuming that rising consumer confidence will lead to a booming real estate market.

While rising consumer confidence levels generally coincide with increasing home sales, there have been exceptions to that rule.

"Consumer confidence wasn't going off the charts during the last recession but the housing market was very strong and stayed strong throughout the entire recession," says Dian Hymer, a real estate broker and author of "Starting Out: The Complete Home Buyer's Guide." The opposite could prove true, as well, with high consumer confidence and low home sales, she says.

Likewise, "consumers may have confidence, but they also need the ability to buy a house," says Celia Chen, director of Housing Economics for Moody's Economy.com.

"Mortgage delinquencies are rising, particularly among subprime loans and nontraditional loans," Chen says. "The regulators are worried, so they've been asking lenders to be more cautious about lending."

As a result, it's harder for some consumers to get loan products in which the initial payments are very low. "As that type of lending dissipates or shrinks a bit, it will be harder for households to purchase homes," Chen says.

Experts also point out that other factors such as the national inventory level play a bigger role in the success of the housing market than consumer confidence. If there are too many sellers and not enough buyers, the market will continue to sputter, they say.

Finally, consumers don't necessarily drive the market. "While consumers are very important in the housing market, part of the reason that we saw the strong boom in housing over the last couple of years was due to investors," Chen says. "Investor confidence is still weak, particularly when you think about certain markets where investors who purchased homes a year ago or a year and a half ago are now not able to unload these homes and make money."

While experts differ on how much of an impact rising consumer confidence levels will ultimately have in 2007, most agree that it can't hurt the market.

"There are certainly a lot more buyers out looking for houses and interested in the market right now than there were in November and December," Hymer says.

But whether that translates into sales remains to be seen, she says.

-- Posted: March 8, 2007
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