How Will the US Credit Downgrade Affect the Philadelphia Real Estate Market?
How Will the US Credit Downgrade Affect the Philadelphia Real Estate Market?
This question and the question of how the US credit downgrade by S&P will effect the entire US Housing market was answered both thoroughly and eloquently by Jonathan Miller, President/CEO and co-founder of residential real estate appraisal firm Miller Samuel and co-founder and Managing Principal of commercial real estate appraisal firm Miller Cicero. The entire article can be found at http://matrix.millersamuel.com/ and Jonathan makes the following predictions:
1. Mortgage rates will likely edge higher and fixed rates may dominate adjustable rates. Global understanding of risk has been thrown out the window after 70 years of the US sitting with a AAA rating. Interest rates (and mortgage rates) are a measurement of risk. The US, at least in eyes of S&P, is now riskier with a AA+ rating rather than the virtually risk free AAA rating. I keep wondering what nation on the planet will deserve a AAA rating if the US doesn’t? However, mortgage rates were already anticipated to rise over the year. If Moody’s and Fitch, the two other rating agencies in the oligarchy don’t eventually agree with S&P, the economic impact may be more muted. Betting money says they will eventually be more in line with S&P.
2. Sales activity will slow down – Consumers do not like uncertainty. With more information to process and higher borrowing costs, consumers will likely take longer to make a decision. Although fewer consumers will qualify for a mortgage with higher rates rising from historic lows, that isn’t expected to be they key factor in the anticipated slow down in sales. Potential purchasers who were on the fence may opt to postpone until things become more clear in the coming weeks and months.
3. Sales prices will decrease – A slow down in sales activity may cause active inventory to edge higher and price trends to weaken (this is a macro view versus a local view since all markets are different).
4. The economy, jobs will suffer — Of course the key driver of the economy and housing demand is employment and income. With unemployment stuck in the low 9% range and population growth outpacing job growth, higher borrowing costs for businesses will work against more hiring..
And in summary Jonathan had this to say, “All in all, the ratings downgrade not a good thing for the economy, jobs and housing, but its not all bad. Economic policy over the past several years coming from inside the Beltway has actually worked against a housing market recovery. In reality, this downgrade should have happened a while ago and perhaps it will force the US government to get its economic act together instead of kicking the can down the road.”
At this point the consensus seems to be the the credit downgrade by S&P was a political message to Congress and the White House and was unwarranted because the United States was never really at risk of defaulting on payments. The entire debt ceiling negotiaion process was a game of political “chicken” in which both Democrats and Republican’s didn’t want to be the one to blink. The argument can be (and has been made by S&P) that the political process and environment right now is preventing the US from making any meaningful economic progress but the fact still remains that the US was never going to default on its debt repayment. The other two major credit rating companies agree, refusing to decrease the US from its AAA rating. Time will tell but my feeling is that the credit downgrade is largely symbolic and that investors world wide know that the US is just as likely to repay debt today as it was a week ago.
To search Philadelphia Real Estate listings for condos, homes and apartments click here.
Blog post compliments of CenterCityTeam’s Philadelphia Real Estate Blog
Frank L. DeFazio, Esquire
Prudential Fox & Roach Realtors – Society Hill
530 Walnut Street, Suite 260
Philadelphia, PA 19106
215.521.1623 Direct
610.636.4364 Cellular
888.308.1148 Fax
[email protected]
www.CenterCityTeam.com
