Real estate for dummies by Real Estate MAX

The Commerce Department’s report Friday showed how the slumping residential real estate market is affecting the national economy. The combination of slower sales and tighter lending led to the economy rising only 1.3 percent in the first quarter of 2007. Businesses are pulling back in the face of the slowdown as they do not want to be overextended if the economy as a whole slows down.

“The economy went through a very soggy period,’’ said Lynn Reaser, chief economist at Bank of America’s Investment Strategies Group. “The biggest risk to the economy is if the housing market doesn’t stabilize. That could force consumers and businesses to cut back sharply in spending. Those risks seem to be limited at this juncture,’’ she said.

Even though the economy slowed in the first quarter, inflation picked up. That could complicate the Fed’s work of keeping the economy and inflation on an even keel. “This is a knife’s edge scenario,’’ observed John Silvia, chief economist at Wachovia Economics Group.

An inflation gauge tied to the GDP report and closely watched by the Fed showed that core prices — excluding food and energy — rose at a rate of 2.2 percent in the first quarter, up from 1.8 percent in the fourth quarter. via Pantagraph.com