Jed Smith discussed the real estate outlook and associated economic risks at the Federal Home Loan Bank of Chicago’s meeting of the Mortgage Partnership Finance and Advisory Council on April 18 in Chicago. Smith indicted that the current economic expansion is expected to continue for the next several years, but the current expansion is the weakest since the Great Depression and is characterized by high unemployment and underemployment, limited job growth, difficult credit conditions, and continued concern over a variety of basically unpredictable economic factors such as oil prices, sovereign state credit issues, and government deficits.

The good news is that Existing Home Sales, reported by NAR on a monthly basis, appear to have stabilized and seem to be on the upswing. According to the Realtors® Confidence Index survey, Realtors® are increasingly optimistic about the residential sales outlook. In addition, residential home prices seem to be stabilizing as inventories of homes for sale decline.

The bad news tempering the economic outlook is the jobs situation and government deficit. Job creation continues at well under 200,000 a month, and continued government deficits are not sustainable. Smith noted that some major policy changes in terms of government spending, taxes, and incentives are likely in the future—and there is always a risk that changing economic policies could make the overall economy worse.

Noting President Eisenhower’s famous quote about wanting a one armed economist (avoiding “on the other hand”) Smith noted that on a short term basis we should expect to see continued improvement in the economy and the residential and commercial real estate markets. Smith noted that there seems to be some additional pent-up demand that could come onto the market in the foreseeable future and that consumer surveys indicate that owning a home continues to be a key part of the American dream.