In this week’s Real Estate News Brief… another drop in mortgage rates, what new tariffs will cost U.S. consumers, and a survey on homeownership happiness.
We begin with economic news from this past week that includes the latest report on construction spending. It was up .1% in July, which was less than MarketWatch economists expected. (1) And that’s after a big drop in June. Commerce Department data shows that spending was 2.7% lower this July than a year ago.
The latest jobs report shows a hiring slowdown in August. The Labor Department reported that companies added just 130,000 jobs. That’s about 30,000 jobs less than economists had forecast, but the unemployment rate remains close to a historic low of 3.7%. As reported by the New York Times, the numbers show that the labor market is showing a “decent performance” despite all the headwinds from the trade war.
A new round of quantitative easing continued this last week, for a second week in a row. The Federal Reserve has purchased a total of $14 billion in bonds over the last two weeks, which pours money into the economy. The central bank had ended its previous QE stimulus back in 2014 and had been reducing its portfolio of bonds until last spring. It’s too soon to know if the Fed will continue with this plan, but some economists are predicting that the Fed will cut short-term rates later this month, and possibly again before the end of the year.
Although Fed rate cuts are not directly connected to mortgage rates, they could help push those rates even lower. They are currently at their lowest level since October 2016. Freddie Mac says, the average 30-year fixed-rate mortgage fell 9 basis points this last week, to 3.49%. If the interest rate dips one percentage point less than what you have on your loan, It could be worthwhile to refinance.
In other news making headlines…
Economic Strength vs. Uncertainty
There’s a lot of talk about stock volatility, an inverted yield curve, a possible recession, and the economic risk of the current trade war. The stock market has had a rough month with all the negative news. The Dow Jones plummeted 800 points on August 14th, because of a yield curve inversion. At the time this podcast was recorded, there were positive signs about a trade deal with China, which lead to a rally, but the uncertainty continues in the midst of the trade war and a weaker global economy.
As for the yield curve inversion — which shows the 10-year Treasury yielding less than the 2-year bond — that is typically a sign that recession is coming. But, economists say history shows a 12 to 18-month lag time after that first warning sign, and that stocks often rally during this time. So there may not be a reason to worry, just yet, although there are signs of concern among consumers.
People Googling for “Dow Jones”
MarketWatch reports a surge in Google searches for the phrase “dow jones” in mid-August. Even if the Googlers weren’t checking on their own stocks, they may be worried about a stock slide and recession. According to Former Fed Chief Alan Greenspan, that could be a more immediate indicator of trouble. He says stock market performance will determine whether we dip into a recession, because of something he calls the “wealth effect.”
As reported by CNBC, his use of “wealth effect” means that consumers will spend more money when their assets rise in value. So if there’s a stock market pullback, then consumers would spend less, according to this theory, and when consumers reduce their spending, we could conceivably slip into recession. Greenspan also warned that the trade war is “eroding” the global economy.
Trade War Progress — Not Much
So where do we stand with the trade gap and the impact on U.S. consumers?
The government reported this last week that the trade deficit fell almost 3% in July to $54 billion, but that’s still larger than it was a year ago, before the trade dispute. MarketWatch says the U.S. trade gap was $374 billion for the first seven months of this year compared with $346 billion for the same seven months last year. So not much has changed since the trade war began. The deficit with China has been reduced slightly, from $30.2 billion to $29.6 billion, but the gap with other nations has grown.
Trade War Cost to Consumers
So what’s this going to cost consumers? According to a New York Times analysis, American families will pay about $460 a year because of tariffs on Chinese goods. (2) Economists say the cost will range from $340 for low income families up to almost $1,000 for wealthier families. They expect that we’ll see increased price tags on all Chinese imports by the end of this year. The Trump administration has also imposed tariffs on some imports coming from Mexico, Canada, and Europe.
Homebuyers Are Happier than Renters
A new survey shows very little remorse among homebuyers. Bank of America surveyed more than 2,500 people, asking questions like, “Does owning a home make you happier than renting?” 93% of the people surveyed said “yes” while only 7% said “no.” The study shows that, for 88% of homeowners, buying a home was the “best decision they ever made” and for 79%, that homeownership has changed them for the better. (3)
Survey results also reveal that homeowners define a home as a place to build memories, and believe that owning a home will strengthen family relationships. They also cite benefits for their social life, and the ability to spend time on their hobbies, and pursue new ones.
Freddie Mac recently released a report saying that 80% of renters believe that renting is more affordable than buying. What this new survey shows is the emotional benefit of owning a home. As HousingWire reports, “Beyond building up wealth and equity as a homebuyer, you can add quality of life and happiness to the value of homeownership.”
(2) Trade War Cost: NY Times
(3) Homebuyer Happiness: HousingWire