While the stock market maintains record levels hoping for a Fed cut in late October, consumers aren’t benefitting from the trend. Because over 2/3 of the US economy depends on consumer spending, this could be a sign of trouble. Granted, stock market gains do increase consumer income through appreciation and dividends, but the stock market rally probably doesn’t reflect the overall state of the economy. This has been a 5 year bull market, which if historical trends inform us at all will likely end soon.  One possible drain on consumer disposable income could be a U.S. Energy Information Administration (EIA) forecast for 10% higher home heating costs this winter. Paper products are likely to rise as manufacturers respond to the Kimberly-Clark announcement that they will raise prices 4-7% for a portion of their consumer paper portfolio of products because of raw material and energy cost increases. Additionally, consumers are still bearing the burden of historically high gasoline prices which have reduced disposable income. 

Retailers are anticipating a tough Christmas season as indicated by Wal-Mart accelerating by 2 weeks its 10 to 50 percent off its “Top 12 Toys of Christmas”  sale compared to last year. Employment remains a strong spot in the economy, yet while the Labor Department now says that 118,000 more jobs were created in June, July and August than it originally reported, it also overstated employment growth by nearly 300,000 in the 12 months ending March 2007.

So how is real estate doing in the uncertain economy?  

Prices are holding firm in

California, one of the nations biggest markets, even as  listing numbers are up and days on market are up. Forecasts indicate that

California median home prices could drop 4% to $553,000 in 2008 compared to this years already high median price of $576,000. California Association of Realtors (C.A.R.) anticipates that sales for 2008 could drop 8-9% to 334,500 units in 2008 against the  367,500 units for 2007.

Some are predicting that mortgage lenders tightening the standards will lead to a further drop in home sales in 2008, while contrarians see a positive side to reducing the predatory practices of the past. Housing bulls say that increasing credit availablity to debt-healthy consumers at even better rates will prevent a catastrophic downturn in the economy.