In this week’s Real Estate News in Brief… the high cost of the government shutdown, home seller profits, and the best states for population growth.
We begin with economic news from this past week. The government is back open, but some government-issued reports are still delayed due to a backlog of work for federal employees. Delayed reports include fourth quarter GDP and the homeownership rate, along with personal income, consumer spending, and core inflation for December. Tax refunds may also be delayed as IRS workers play catch-up and wade through new tax rules.
Government Shutdown Costs Billions
Meantime, the Congressional Budget Office says the 35-day partial shutdown took an $11-billion bite out of the U.S. economy. The CBO expects an $8-billion recovery as federal workers get their back pay, but it says the GDP will suffer an estimated $3-billion decrease from losses that cannot be recaptured.
Big Slowdown for Home Price Growth
Home price growth sank to a four-year low for the three months ending in November of 2018. The latest Case-Shiller 20-city index shows a 0.3% rise in prices. That’s the slowest rate of growth since January 2015. Cities where prices are slowing down the most are cities like Denver, San Francisco, and Seattle where they had skyrocketed.
Pending Home Sales Slide
Pending home sales also slid in December. The National Association of Realtors reported a 2.2% drop, which indicates fewer existing home sales in the coming months. This was the 12th month in a row that pending home sales have decreased.
New Home Sales Surge
New home sales tell a different story. They surged 17% in November to an 8-month high. We’re just getting that report now because of government shutdown delays. There’s also a 20% margin of error in this report, so expect revisions.
Shutdown Dings Consumer Confidence
Consumer confidence also took a hit from the shutdown. The Conference Board says it fell from a reading of 126 to 120, which is an 18-month low. The University of Michigan’s consumer sentiment index also took a nosedive. It dropped from 98.3 in December to 91.2 in January. MarketWatch blames the government shutdown. And the possibility of a second shutdown is looming if the President doesn’t get the border wall funding he wants by February 15th. (1)
“No Rate Hike” for January
As expected, the Federal Reserve did not raise short-term interest rates at its January meeting. Fed chair Jerome Powell said the need for higher interest rates “has weakened” due to a slight pullback in economic growth, and very little inflation. The central bank also omitted mention of “further gradual increases” in its statement. That could mean that rate hikes have been taken off the table for now. Powell says the economy is stable however. He says it’s still expanding, but he now describes that growth as a “solid rate” instead of a “strong rate.”
The needle moved a little higher for longer-term interest rates. Freddie Mac says the average 30-year fixed-rate mortgage was 4.46%. It had been stuck at 4.45% for three weeks in a row.
In other news making headlines…
Home Seller Profits Soar
Home seller profits hit a 12-year high last year. ATTOM Data Solutions released its 2018 Home Sales Report which shows an average $61,000 gain. That’s up from $50,000 in 2017, and $39,500 in 2016. People selling homes in western states realized the most gains, especially those near the coast.
The report also shows that people are staying in their homes longer, before they sell. The average was 8.3 years for people who sold in the fourth quarter of last year. That’s up from 7.95 years in the fourth quarter of 2017.
Many Boomers Plan to Age in Place
Many baby boomers say they never plan to sell. A survey by Chase and Pulsenomics shows that 52% of the boomers in the survey plan to “age in place.” And, most of them are planning to renovate their homes to meet their needs. Bathroom remodels are at the top of the priority list. To fund those projects, most say they will use equity, especially those in markets that have appreciated the most.
The chief marketing officer for Chase Home Lending, Amy Bonitatibus, says, “With home prices generally healthy across the country, two-thirds of these homeowners are turning to financing options like home equity lines of credit or cash-out refinances to complete their upgrades.” The average amount they are financing is $18,000. (2)
Best States for Population Growth
The Census Bureau released its latest report on population growth, and the states that topped the list, once again, are Nevada and Idaho. From July of 2017 to July of 2018, Nevada posted a population growth rate of 2.09%. Idaho was not far behind with a growth rate of 2.05%. Other fast-growing states are Utah, Arizona, and Florida.
The U.S. population gained a total of about 2 million people within that time frame. There are now 327.2 million people living in this country.
Zillow Prize for Zestimate Accuracy
Zillow announced a winner in its one-million-dollar competition to improve its Zestimate home valuation tool. Right now, the Zestimate margin of error is 4.5%. The winning team reduced that to less than 4%. That means the Zestimate will be able to predict the sales price for a typical home to within $10,000. When Zillow first started publishing its Zestimate back in 2006, the margin of error was 14%.
The Zillow Prize competition attracted 3,800 teams from around the world. The people on the winning team came from the United States, Morocco, and Canada and will split the one-million-dollar prize. (3)