In this week’s Real Estate News in Brief… we hear from the Fed on rate hikes, the spring home buying season gets an early start, and a new warning about the next recession.
We begin with economic news from this past week.
The Federal Reserve wrapped up its March meeting with a policy stance that eliminates a rate increase for 2019. Fed chief Jerome Powell says the economy is in a good place right now and there’s little risk of inflation. Most members of the Federal Open Market Committee are predicting just one rate increase next year. The more subdued outlook is due to the current global economic slowdown. They blame the slowdown on economic conditions in Europe and China, the ongoing trade war, and the fading effects of the Trump administration tax cuts. Their forecast in December called for two rate increases this year, and one in 2020.
Fed members also cut their forecast for gross domestic product from 2.3% to 2.1%. That’s down from a 2.9% GDP last year.
They are also planning to start tapering their balance sheet sell-off in May and end it entirely in September. The balance sheet grew to about $4.5 trillion worth of Treasury and mortgage-backed securities as an economic stimulus. It’s currently down to around $3.8 trillion in bonds, according to Reuters. Economists expect to see it decrease to around $3.5 billion by the end of September. Ten years ago, before the crisis, it was around $800 billion.
The latest survey of economic conditions shows a small burst of economic growth in February, for the first time in five months. The Conference Board says the leading economic index was up 0.2%. According to MarketWatch economists, the upswing is due to higher stock prices, lower interest rates, and better access to credit.
The spring home buying season got off to an early start in February. The National Association of Realtors says they shot up almost 12% with about 5-and-a-half million sales, to an 11-month high. One of the factors encouraging buyers is the drop in mortgage rates.
According to Freddie Mac, the average 30-year fixed-rate mortgage dropped another 4 basis points this past week, to 4.28%. That’s the lowest it’s been for more than a year.
In other news making headlines…
Treasury Yield Curve Inverts
A closely-watched economic indicator is raising new concerns about a recession. The Treasury yield curve inverted on Friday, March 22nd, for the first time since 2007, as we marched toward the Great Recession. The yield curve represents the gap between the 3-month and the 10-year Treasuries. When it inverts, it means that gap has disappeared and it’s typically a warning that a recession is not far away.
Chief fixed-income strategist Kathy Jones at Charles Schwab says of the inverted yield curve, “It’s clearly a sign that the market is worried about growth and moving into Treasuries from riskier asset classes.” Economist and Nobel prize winner Robert Shiller believes there’s a very good chance that we’ll have a recession in the next 18 months. (1)
But not all economists agree. Ryan Sweet of Moody’s Analytics said in an opinion piece, “I’ve always been told not to bash the yield curve. But I’m bashing it.” He says it’s “sending a false signal” and the “economic fundamentals are fine.” (2)
Affordability Still an Issue
Lower mortgage rates will help some buyers, but a new Realtor.com survey (3) shows that affordability is still a major obstacle for many. The national median home price is almost $300,000 but the survey shows that almost half of the buyers are looking for a home that costs $200,000 or less. Inventory is very tight at that level. Realtor.com says it’s dropped 7% from this time last year. So many home buyers are coming up short in their search.
Inventory is up overall, but mostly in the higher price range of $750,000 or more. The market is tipping in the buyers direction at those prices. The survey shows that only 17% of buyers plan to submit offers over the asking price. That number was much higher last year at 26%.
Realtor.com’s chief economist, Danielle Hale, says, “More homes on the market and lower mortgage rates will help offset some difficulties associated with price gains, but affordability will remain the primary challenge for shoppers, particularly in lower price segments.”
Buyers Spooked by Negative Reports
Home builders say that negative reports about the housing market is sidelining some buyers. 62% of home builders in a survey say those reports have made it more difficult to attract home buyers. The National Association of Home Builders survey shows several other issues as well, including the political climate in Washington and concern about jobs and the economy. Some are hoping interest rates will go down further or waiting to sell their current homes.
The Association also released its latest report on homebuilder sentiment which was unchanged in March. That’s after two months of an increase.
Millionaires on the Rise
The number of people who can afford expensive homes is growing. A survey by the Spectrem Group says the U.S. now has a record 10.2 million households worth one to five million dollars, excluding the value of their primary residence. That’s a 2.5% increase from 2017.
Households worth more than that, between five million and 25 million dollars rose 3.7% to about 1.4 million. Above that, in the 25 million dollar and higher range, there was a 0.6% increase to 173,000.
The survey says that the number of people in the wealthiest category has more than doubled since the Great Recession, but the rate of increase at that level has been slower. Wealth manager, Greg Soueid, says, “Some of this slowing in wealth creation has to be expected due in part to softening equity markets, after almost a decade of very strong returns, coupled with the early effects of the tax reform on affluent households.”
(1) NewsMax Article
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