The local economy in a neighborhood, small town or community can tell you a lot about how the community is doing. If the local economy is poor, property values may be on the downswing, services may be in decline, unemployment may be up and you may see an increase in crime. When the local economy is good, on the other hand, your community may experience growth, property value appreciation and improved services and amenities. How can you tell whether the economy is good or bad before you buy?  

Key Indicators of an Economy in Decline

Employment is one of the biggest indicator of how a local economy is doing, so high unemployment rates are a key indicator that a local economy may be in decline. In some midwest factory towns, for example, the towns have entered downward spirals when factories moved their business away. Rising unemployment contributes to fewer purchases, so local retail and restaurant establishments may be forced to close. Property values decline and unemployment may raise further in unskilled workers. All of these are a bad sign for a local economy.

When you’re visiting a neighborhood, town or community, look for things like vacant storefronts, bad roads and poorly-maintained public spaces. All of these are signs of an economy in decline. Be particularly wary of areas with lots of retail space that is vacant, offices that are unoccupied and restaurants that have closed. These areas may have been in decline for a long period of time, and may be a long way from revitalization. Without a large injection of cash from a new major employer or some other source, these communities may take years or even decades to bounce back – or they might not recover at all.

When you see a news report talking about home prices changing, can you take the report at face value? In most cases, the answer is no. News reports about the state of a local or nationwide real estate market are often skewed. In many cases, reporters base their ‘conclusions’ on skewed data. If you’re going to rely on news reports to tell you about the activity in a real estate market, know what you’re seeing and what the reports actually mean. You can still get good data from these reports if you know how to read between the lines. 

Median Home Values can be Misleading

Most real estate activity reports are based on the median home values in a neighborhood. If median home values increase, news agencies often report appreciation in a neighborhood. If median home values go down, this can prompt reports of a slowing economy, home values dropping and other negative conclusions.

What most people don’t realize is that median home values indicate activity – not necessarily the conclusions that news sources draw. For example, in a down economy, there may be more activity on low-value homes. That doesn’t mean that home prices have gone down; it just means that homes in lower price ranges are selling more. A drop in median home values doesn’t always mean what the news sources say, so take their conclusions with a grain of salt.

Trust the Data – Not the Conclusions

Data can tell you a lot about a real estate market, but for a true indication of home values rising or falling, you must compare comparable properties. Median home values aren’t tied to comparable properties, so they can be misleading. If median home values in two-bedroom homes in a specific neighborhood are going down, it might be a sign that real estate prices are falling. Median home values without more specific data, however, are unreliable indicators. Look for more data to validate or invalidate what the news sources claim.

Economists for the ABA predict that the high unemployment rate and the fact that consumers are holding back on their spending will slow the economic recovery process, but at the same time the ABA economists expect the real gross domestic product (GDP) to grow by 3.1% in 2010. At the rate of growth of 3.1%, the GDP will only grow at half the rate the GDP has reached after historic recessionary periods.  

The U.S. Department of Labor reported an unemployment rate of 10% in December of 2009. This is a drastic increase as compared to the 4.6% unemployment rate in December of 2007. The unemployment rate jumped to 5.8% in 2008.

A look into other statistic reveal that the workforce is not functioning at full capacity and while the recession is technically reported to have ended when 2009 ended, the economic recovery that typically takes place after a recession is not expected to occur during the first quarter of 2010.

In an effort to speed this recovery, monetary and fiscal policies have helped. Banks and lending institutions are trying to keep the credit possibilities open to consumers and businesses. In addition, experts expect the Federal Reserve to start raising the federal funds rate during the second half of the year.