In this week’s Real Estate News in Brief… new evidence of an economic slowdown, a huge drop in mortgage rates and homebuyer optimism despite recession warnings.
We begin with economic news from this past week and more signs of a slowing economy. New figures on fourth quarter GDP show a 2.2% rate of growth. Economists blame it on softer consumer spending toward the end of the year, the trade dispute with China, and the fading effects of the Trump tax cuts. The full year GDP is still strong at 2.9%.
Inflation levels were down somewhat in February. The government says the core rate rose just 0.1% in January, and the full-year rate dropped 0.2% to 1.8%. So, the GDP and inflation are slightly below their target levels of 3% and 2% respectively.
U.S. Housing starts were down 9% in February. The Northeast saw the biggest decline at 30%. The only region that saw a surge in construction activity was the Midwest with a 27% increase. Building permits also fell but were only down 1.6%. MarketWatch economists say builders may get more motivated with the lower interest rates.
The pace of new home sales may also motivate home builders. February sales were the highest since last March. MarketWatch reports a steady and growing demand for new homes as existing homes get older. The average age for an existing home is 37 years. Many people are also holding on to their long-time homes, which is one reason that inventory is tight.
Just this last week, the National Association of Realtors reported a February drop in pending sales for existing homes. NAR’s chief economist Lawrence Yun isn’t surprised by the drop after a strong January.
Home prices were up in January, but the Case-Schiller home price index shows that price gains have slowed to a crawl. The 20-city index was up a seasonally adjusted 0.1% in January. That’s the slowest pace of price growth since 2012.
All these headlines about an uncertain economy rattled consumers. The Conference Board says that consumer confidence dropped from 131 to 124 in February.
Possibly the best news of the week, is another big drop in long-term mortgage rates. Freddie Mac says the 30-year fixed-rate mortgage sank 22 basis points, to just 4.06%. That’s the biggest one-week drop in a decade.
In other news making headlines…
Yellen Comments on Inverted Yield Curve
Former Fed Chief Janet Yellen made headlines this last week, with comments on the inverted yield curve. The Treasury yield curve inverted for the first time since mid-2007, and many economists say it’s a sign that we’re headed for a recession. Yellen disagrees. She says it may indicate the need for a rate cut, but not a recession.
She said of the current Fed policy stance, “They’re prepared to move in either direction depending on how things play out. But my baseline is I don’t see a recession, I don’t think it’s likely.” (1)
Homebuyers Optimistic Despite Recession Warnings
Homebuyers are also feeling optimistic about the housing market. Realtor.com released a new report that shows 70% of home shoppers believe we’re headed for a recession sometime in the next three years, yet 45% of them still feel hopeful about homeownership.
Realtor.com chief economist Danielle Hale says, “The U.S. economy has been on a hot streak for the last seven years producing steady economic growth and low unemployment rates. Historically this type of growth hasn’t continued indefinitely, and U.S. home shoppers think it will come to an end sooner rather than later.”
But Hale doesn’t think the housing market will see a sharp downturn in the next recession. He says, “The same record low inventory levels that have made buying a home so difficult recently, will likely protect home prices in the next recession.” (2) A majority of survey participants seem to agree. 41% said the housing market will be in better shape this time around. 36% said it will be worse.
Temporary Visas for Construction Workers
Representative Lloyd Smucker hopes to address the nation’s labor shortage with two new pieces of legislation. He wants to create a new immigration visa system, and build what he calls a 21st century workforce.
The “Workforce for an Expanding Economy Act” would allow the hiring of less-skilled immigrant workers to do year-round, non-farm work. The bill’s co-sponsor, Representative Francis Rooney, says it “would provide qualified workers for positions that employers are unable to fill.” He also says the legislation would “greatly benefit the construction and hospitality industries.”
The other bill, called “The USA Workforce Tax Credit,” would allow tax-deductible donations by small businesses for community-based apprenticeship opportunities. That would help “recruit and train the next generation of workers.” (3)
(1) NewsMax Article
(3) Smucker Article
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