Challenging Times

Rising fuel costs, the declining value of the dollar, decreasing home prices, increased food costs and reduced consumer spending are all greatly impacting the economy.
The underlying cause of many of today’s problems may be linked directly to credit markets

Other factors impacting our current economy:

• Home values continue to drop in many parts of the country. Some Economists believe that this represents a "right-sizing of the true cost" of home values which had become inflated. Victims of Sub-Prime Lending and people who simply bought more home than they could afford are driving many of today’s foreclosures.
  
• Unemployment has been on the rise. As a result, Americans do not have the purchasing power of the past five years. That surge in consumer spending has been a key economic driver for some time.
  
• Rising fuel costs impact everyone from individual consumers to major businesses. Airlines and trucking companies are becoming less profitable, forcing bankruptcies and consolidation in the industry – and passing higher costs onto consumers.
  
• Food prices have had large increases over the past 12 months. Rising energy costs for production and transportation combined with growing worldwide food demand and the shift to producing ethanol rather than food have all had a negative impact.

Consumers are losing confidence in the economy along with the drop in their Real Estate values. Until that stabilizes, Consumer optimism will most likely remain low, causing fear and caution, impacting spending habits and willingness to invest.

Is there light at the end of the tunnel?
In the midst of all the doom and gloom, steps are being taken to address the multiple issues facing the U.S. economy. As it has in the past, Government intervention may provide significant relief.
Congress is currently debating several actions to ensure that Student Loans don’t dry up for borrowers.
The Federal Reserve has drastically cut interest rates, lowered collateral standards for banks and created discount windows for brokerages seeking overnight loans.
The IRS will soon begin mailing Americans millions in tax rebates (the centerpiece of the Government's $168 billion stimulus package), flooding the economy with cash that will be used to pay down debt, drive consumer spending and increase savings.
Multiple plans at both State and Federal levels are being implemented to keep people out of foreclosure or provide them with time to ‘catch up’ on loans that are delinquent.
The Government has also allowed the two Housing agencies, Fannie Mae and Freddie Mac, to purchase more mortgages, improving liquidity and price. They are expected to purchase more than $300 billion in additional mortgages as a result of the latest government actions.

More positives?
Some experts are saying that the dollar is stabilizing. A weak dollar isn’t all bad, it makes U.S. produced goods cheaper for foreigner buyers. As a result, the demand for U.S. exports increases. This increase in exports leads to a reduction in the trade deficit.
Existing home sales rose both in January and February. Low interest rates continue to attract both Buyers and Refinance Clients. Plus, certain segments such as Senior Housing have seen prices hold while demand increases. As both house prices and mortgage rates fall, the housing affordability index, published by the National Association of Realtors, has hit a three-year high.
Some businesses, such as energy alternatives and "Green Companies", are actually flourishing in an environment where gas prices rise almost daily. This growth area, combined with an intense focus on ‘green-living’ will create new jobs and drive investment in new technologies.
Farmers are reporting record crop prices. The price of farm land has increased significantly. The growth of per capita income has outpaced the national average by a wide margin. Sales of farm equipment like tractors and combines are strong.
Our economy in the United States is cyclical and we’ve lived through this type of challenging cycles before. Every recession is unique and has different solutions and responses. Americans are very good at responding to and weathering these difficult times.. There’s a lot of energy being put into solving the problems and I think that should give people hope.
If you have any questions regarding purchasing a home or refinancing your current home please give me a call direct at 763-557-5608 or stop in to see me at the Bremer Bank Plymouth location at your convenience.
As always, referrals to family, friends, neighbors and business associates are most welcome!
Enjoy the Spring weather.
Regards,
Steven