Well, Perhaps Not The Best of All Worlds
Last week we spoke
with optimism about the fact that the economy is indeed recovering but interest
rates are remaining lower than most had predicted for this year. We wondered
whether we might actually have the best of both worlds -- at least for a short
period of time. However, we have to recognize why rates are so low while the
economy is edging its way back to normal. If rates are low because there is no
evidence of inflation and the economy is not in danger of overheating, that is
a good thing. As long as the economy keeps improving.
On the other hand,
if rates are down because of the violence which is occurring in several areas
of the world, that is another matter. When the world is in crisis, it is not
unusual for U.S. Treasuries to be a safe haven for investors. While the effects
of low rates are still positive for our economy, we can't actually describe
this as a good thing. And there is a connection between the economy and these
events. For example, the economic sanctions levied against Russia are already
affecting the European economy. During the financial crisis we saw how an
under-performing economy in Europe can affect our economy's performance.
With regard to our
economic recovery, this past week's jobs report gave us evidence that the
economy is not about to overheat and thus the Federal Reserve Board is not
likely to move on increasing interest rates more quickly than originally
anticipated. Wage growth has not been strong enough to contribute to concerns
about inflation at this point in time. When you add the aforementioned concerns
about world conflicts, it appears the Fed is more likely to keep rates low
until sometime next year. On the other hand, the fact that 142,000 new jobs
added in a month is now considered disappointing shows how far our economic
recovery has progressed over the past year.
A pick-up in the
economy is expected to help propel the housing market forward, with an increase
in household formation and a stronger recovery, according to Freddie Mac's
Economic and Housing Market Outlook for August. "We are getting closer to
a more normalized economy, and now we are expecting to see housing driven by
fundamentals, and, in fact, we've already seen this in some markets," says
Frank Nothaft, Freddie Mac's chief economist. "The economic growth and
labor market gains we saw in the second quarter of this year are projected to
continue, strengthening household formations and the housing sector. A
recovering housing sector will sustain the rally in homebuilding, despite
likely increases in long-term rates. Increased construction activity will
further accelerate the improvement in labor markets and fuel even more
household formations and more housing demand. The result is an economy that
gradually recovers back toward its potential." The labor market has added
an average of 230,000 net new jobs during the first seven months of the year,
the first solid improvement after several years of weak employment. Over the
past four quarters, net household formations totaled 458,000, according to
Census Bureau data. But the Joint Center for Housing Studies is projecting that
to jump 1.2 million to 1.3 million per year in the long-term. The number of
persons per household has risen by 2.6 percent since 2005, from 2.69 to 2.76
persons. "If the persons per household had held steady over the period,
there would be an additional 3 million households today," according to
Freddie Mac's report.Source:
Freddie Mac
Following two years
of increasing home sizes, the median size of new-homes appears to be leveling
off as entry-level buyers return to the market drawn to more modest homes. The
median size of homes that builders started construction on in the second
quarter was 2,478 square feet, holding the same as the previous quarter. It
remains near the record high of 2,491 square feet, which was reached in the
third quarter of 2013, the Commerce Department reports. The median size of new
homes began to increase in 2012 as move-up and luxury buyers began a drive to
purchase larger homes. Also, buyers were showing preferences for more bedrooms
(at least three), larger garages, basements, and wide-open living spaces like
great rooms, according to a 2012 survey of new-home buyers conducted by the
National Association of Home Builders. While move-up and luxury buyers
mostly drove the demand to bigger homes, entry-level and first-time buyers, who
tend to buy smaller homes, have been notably absent from the market. However,
homebuilders are reporting a slight uptick in entry-level buyers heading back
into the market. Homebuilders such as D.R. Horton Inc., KB Home, PulteGroup
Inc., and Century Communities Inc. have all reported a slight increase in
entry-level buyers re-emerging. For example, Pulte reports that sales of its
entry-level Centex homes, priced at an average of $202,000, rose by 26 percent
in the second quarter compared to a year earlier. "The expectation will
be, whenever we see an increase in first-time buyers, that will put downward
pressure on the trend of new-home sizes," says Robert Dietz, an economist
with the home builders group. "Then it will be a question of whether we'll
see some actual decreases in the median as the market mix [of buyers] changes
over the next two years." Source: The Wall Street Journal
The next generation
of home buyers say they will move to the suburbs if it means they can find
quality schools there, according to a newly released survey by realtor.com®. In
fact, millennials – the generation born between 1980 and 2000 – are less likely
than other generations to compromise on school districts when in house-hunting
mode, the survey revealed. Fifty-two percent of millennials said school
districts are a deal-breaker in their home search, compared to 31 percent of
all buyers, the survey found. “Local schools are clearly more important to
specific population segments—such as today’s millennials, who either have or
are planning to have children,” says Jonathan Smoke, the realtor.com®
chief economist. “High-ranking schools can have a positive impact on home
values over time as new families pay a premium for access to better schools.”
The majority of buyers who are using the realtor.com® search-by-school web tool
to find school information are researching elementary schools in particular
while looking up homes for-sale online, according to realtor.com®. “This
indicates the majority of people who research good schools either have young
children or expect to start a family when they buy their next home,”
realtor.com® notes. Source: realtor.com®
No comments:
Post a Comment