The 2007 Economic Outlook
2006 was a mixed year. We had records set in the stock markets and the housing markets. As I’m writing this the Dow has closed at a record high of 12,445.52 and looks like it will rise even higher before the year closes. At the same time, our housing market is setting records on the other end of the spectrum. This year we saw more homes available on the market than at any other time in history. Some people have done really well this year, other’s have lost nearly everything in the housing market bust. 2006 was a mixed year.
The Housing Market Will Normalize – Some areas will see growth, some will see prices come back down to where they should be. According to the article “Best and Worst Real Estate Markets” there will some spots that are hot and some that are not.
If you happen to live in the northeast, your market looks to be fairly steady with a few hot spots and a few cool spots, ranging from a projected 4.8% growth in Syracuse, N.Y. to a -3.6% drop in Poughkeepsie, N.Y.
If you reside in the south, congratulations, you are home 12 of the 20 hot spots for 2007. The big winner is the area around McAllen, TX with a predicted growth rate of 8.5%. However, if you happen to be in Florida, watch out. You could see housing prices fall by as much as 5%.
How about the midwest? Well, it’s about as exciting there as it was in the boom market last year. It doesn’t really have any losers, just a pretty steady growth rate around 2.5%-3%.
And finally, the big boys, the west coast. You’ve had your fun over the last few years seeing enormous growth and over inflation of housing prices. Now, it’s time to pay the piper. You could see housing prices deflate by as much as 6%. In short, if it was hot last year, it won’t be this year.
The Equity Markets Will See Steady Growth – BusinessWeek believes that Optimism Reigns in 2007. Companies have shown tremendous growth over the last several quarters. We’ve seen double digit growth out of some giant blue chip companies. We’ve seen nearly 13% growth out of the S&P 500 in 2006.
Is this growth sustainable? Well, in the short term, we may see the markets decline as earnings normalize and the slumping housing market starts to take effect on the economy. However, by mid-year 2007 I see a very normal growth rate returning to the market. Consumers are optimistic, incomes have been growing while inflation has been relatively low. This leads to more disposable income. Some of which will be pumped back into the economy.
Don’t look for recored setting growth, but do expect to earn a respectable return on your investments.
2007, I believe, will be a brighter year. Markets will begin to normalize and the economy will continue to level off. Crime rates will drop, crooks will repent, the rain forest will re-grow and the ozone layer will improve…alright, maybe that’s a little too optimistic. But seriously, 2007 will be a better year.