Although this year's economy is likely to remain depressed, small signs are beginning to emerge that suggest the recovery, while not yet blooming, has begun to take root. These signs are appearing in the housing market, in the credit markets as well as on Main Street. At the same time, continued declines in employment and rock-bottom levels of consumer confidence are likely to remain a dark reminder of the severity of the current downturn.

Housing comes first

According to the National Association of Home Builders, the housing market, which was the trigger for the current economic crisis, must see a turnaround before the overall economy begins to improve. Fortunately, several efforts to encourage homeownership and stem foreclosures should help single family housing reach bottom late in 2009. The federal stimulus bill includes an $8,000 tax credit for first-time homebuyers who purchase homes between Jan. 1, 2009, and Dec. 1, 2009.

In addition, the Obama administration's housing rescue plan should help to reduce the number of foreclosures through its loan modification program. Under this program, loan servicers will reduce interest rates (and principal if necessary) so a family's monthly mortgage obligation is no more than 31 percent of its pre-tax income. Although single family housing starts will continue to fall in 2009, these and other programs designed to solidify the housing market should ensure that this year is the bottom of the cycle.

Looser credit will help

Another factor that has brought the economy to a standstill is the credit crisis. Lending standards stiffened significantly in early 2008 when 80 percent of bank lending officers indicated that they had  tightened standards on commercial real estate loans . That's a marked jump from earlier quarters. In the third quarter of 2008, 87 percent of lending officers reported tighter conditions, a record level. But by the second quarter of 2009, lenders became much less restrictive as just 66 percent of loan officers reported tighter standards. Still, with the level remaining historically high, it's clear that last fall's financial rescue package fell short of its desired impact.

Fortunately, the Federal Reserve and the Obama administration have taken further actions in 2009 to facilitate the flow of credit. To boost housing, the Federal Reserve began purchasing debt obligations held by the federal housing agencies and is on track to buy $100 billion and $600 billion in mortgage-backed securities by June. In addition to increasing the available supply of funds for mortgages, these efforts have begun to reduce mortgage interest rates as well. Mortgage rates declined to 5 percent in March compared to 6.1 percent in November and 6.5 percent last July. Lower interest rates have encouraged an increase in loan refinancing that should put more money in homeowners' pockets, which could lead to increased spending. Moreover, in combination with first-time homebuyer credits and lower home prices, these low mortgage rates should encourage more buyers to enter the marketplace.

Stimulus funds hit Main Street

The most immediate help to the economy, of course, is coming from the federal stimulus bill. The goal of the American Recovery and Reinvestment Act of 2009 is to create or save at least 3.5 million jobs by the end of 2010. Of the $787 billion price tag, about $130 billion is included for construction. Although most of the construction-related funds were devoted to the transportation sector, the stimulus efforts will aid the entire economy by putting people back to work and a paycheck in their pockets.

Of course, while stimulus funding will provide a great deal of short-term support to this beleaguered economy, a more sustained recovery will require a healthier banking sector. The steps taken in the early months of 2009 will take some time to implement but the effects should be discernable by the end of this year. The springtime may bring hope but delivering results takes time and effort.

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