No More Excuses
Over five years
ago we suffered the worst recession since the great depression almost 100 years
ago. Since then our economic recovery has been the weakest of all recoveries as
well. There are many reasons for the weak recoveries. The fact that our real
estate market was devastated and needed years to recover was certainly a main
factor. But there were other reasons for the stops and starts which were
external. We had domestic and world-wide natural disasters from hurricanes and
super storms to tsunamis. We will not get into a debate as to whether global
warming is causing these extreme weather events but we will acknowledge that
they were very, very extreme and caused major damage to populations and
property.
There were
events that were not weather related, of course. There was the fiscal crisis in
Europe and political crises at home. We had wars being fought and terrorist
events. Many of these events prolonged the recovery and made us wonder whether
we would suffer a double dip recession, which never came. 2014 has certainly
not been smooth sailing with our famously cold winter and the crisis in
Ukraine. However, we believe our economy has recovered to the point that we no
longer talk about slipping back in recession. The drop in the economic growth
in the first quarter is a testament to that confidence. Economists shrugged off
the down quarter almost universally. So what comes next?
The sun is
shining and there is no more cold winter. We are running out of excuses for the
economy being so lackluster during a recovery period. The employment report
released on Friday showed continued progress in that regard. The last two
months has seen a significant pickup in hiring but the employment report also shows
how far we need to go. We have recovered all the jobs lost during the
recession, but accounting for population growth during the past six years, we
have seven million jobs to go. Economists surveyed by CNN/Money indicate that
it would take two years or more at this pace for the unemployment rate to reach
5.5% and wage growth is still anemic. The good news? A slow recovery continues
to support low interest rates and hopefully the Federal Reserve Board agrees
with that assessment when they meet shortly.
Rates on home loans have dropped
so much this year – falling about one-third of a percentage point — that the
low levels could “stimulate” the housing market, Nobel Prize-winning economist
and home-price expert Robert Shiller said. “These declines matter,” Shiller
said in a CNBC interview. “People are watching interest rates.” Shiller’s
remarks echo comments earlier this year from Federal Reserve
Chairwoman Janet Yellen, who said that low rates “should serve as a
stimulus to people coming back into the housing market.” Buyers faced a double
whammy to affordability over the past year. Rates started rising in May 2013 as
the market speculated about when the Federal Reserve would start pulling back
on its massive asset-purchase program that exerted downward pressure on
long-term rates. At the same time, builders and home owners cranked up asking
prices, enabled by a low number of homes on the market. As a result, recent
home-sale readings are trailing year-earlier results. But sales conditions
are improving. Rates dropped this year on a string of weak economic reports. A
combination of lower rates, slower price growth and an improving
economy may lead to faster home sales this year. Source: Market Watch
Consumers are
more committed to buying or selling this year, according to Prudential Real
Estate's Consumer Outlook Survey. Of the 2,500 consumers surveyed, 78 percent
held a favorable view of real estate, a five-point jump from the previous
quarter and 15 points higher than at the end of 2012. Sixty-three percent said
they were more committed to buying and selling in 2014. One generation in
particular has a favorable perception of real estate right now: Millennials.
The generation peaked at 87 percent with a favorable perception of real estate
in the latest survey. “Consumers understand that the U.S. economy and
residential real estate continue moving in positive directions,” says Earl Lee,
CEO of HSF Affiliates LLC. “Accordingly, they’re feeling much better about
their personal situations and want to take advantage of attractive home prices
in many markets and interest rates that remain low by historical standards.”
While they’re optimistic, consumers are also realistic, believing that the rate
of appreciation of U.S. home values will slow after a strong run in 2013. They
say their No. 1 concern about the housing market is “decreasing home values,”
followed by “saving enough for a down payment.” Respondents to the survey also
say that tight housing inventories would likely impact their home-buying
decisions this year, and 67 percent expect to face more buyer competition.
“Normalcy is returning to residential real estate,” says Lee. “People are
seeking homes for all the right reasons: to gain shelter and security, raise a
family, and generate long-term wealth.” Source: Realtor Magazine
Americans are
much less mobile than we think. Almost 70 percent of us who were born in the
U.S. still live in the state of our birth, as only 1.5 percent of population
moves across state borders, a rate lower even than that of our parents. When we
do move, it is most often in search of a new job, less expensive housing or a
warmer climate -- and not, as is often suggested, to find a state with lower or
no income taxes. What is the primary driver? One force, especially for older
people, is the sun. Over the past two decades, cold-weather states such as
Ohio, Pennsylvania, New Jersey and Michigan have lost a significant share of
population to sun-belt states. A second motivator is housing; people who move
from cities in California or New York to those in Texas or North Carolina
typically benefit from substantially lower housing costs. The biggest draw
of all for someone of working age, though, is a job. Nearly a third of
Americans who relocate across state lines say they are moving for a “new job or
job transfer.” Source: Bloomberg
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