[REN #787] Real Estate News Brief – Recessionary Impact on Housing, Contractor Labor Shortage, Air Conditioner Tips

Picutre of thermostat for Real Estate News for Investors Podcast Episode #787

In this week’s Real Estate News Brief… how a recession would impact housing, what contractors say about the labor shortage, and the best settings for your air conditioner.

Economic News

We begin with economic news from this past week. The latest Case-Shiller report on home prices shows that prices rose at a slower pace in June. Prices in 17 of the cities in the 20-city index only rose a tiny bit. That left the 12-month reading at 2.1% which is down from a previous annual pace of 2.4%. According to MarketWatch, home prices were rising three times faster a year ago at 6.3%. (1)

Keep in mind that the Case Shiller report has a two-month delay so these numbers reflect a time when rates were higher. The Federal Reserve has been raising rates in an attempt to slow down a runaway housing market, where prices had been going up every month for 10 years. The monetary policy worked and home price growth slowed to the pace of inflation. This is actually a good thing, although many media outlets were reacting like there was a housing meltdown.

In fact, we did not see price declines in most markets, except for a few bubble markets like San Jose, California. Overall, home prices continue to climb, but at a more steady rate of 2%.
What is more surprising is that pending home sales were down 2.5% in July, after two straight months of gains. The National Association of Realtors says, sales were down in all four regions with the biggest drop in the west at 3.4%. Lower mortgage rates are helping home sales somewhat, but MarketWatch says the drop in rates is prompting more refinancing activity than home sales. (2)

NAR’s Chief Economist, Lawrence Yun, says the lack of affordable housing is slowing sales, despite lower interest rates. Personally, I would say the barrage of headline news predicting a looming recession is more to blame. Nobody wants to buy a home at the top of the market, in fear of another housing crash. Unfortunately, what is not being covered enough is the fact that foreclosure rates are very low, home equity is high, and people are locked into fixed-rate mortgage payments that are oftentimes lower than the cost to rent. It’s unlikely that we’ll see another foreclosure crisis this decade.

The gross domestic product fell slightly last spring. The latest revision shows the economy was expanding at an annual rate of 2% from April through June. The government had initially reported a 2.1% reading for that period.

So once again, we are not in a recession or even near a recession at this time. In fact, with the Fed lowering interest rates, we are more likely to see a boom in the stock market and real estate over the next few months.

Consumers pulled out their wallets more often in July for things like cars, trucks, recreational vehicles and air conditioning. The government says consumer spending was up .6% and that prices only rose .2%. That pushed the yearly rate of inflation up to 1.4%.

The government’s report on consumer confidence also shows that consumers are not too worried about the economy. The Conference Board said this last week, that the index fell slightly but is still close to a 19-year-high of 135.1.

The University of Michigan’s consumer sentiment index shows more discontent among consumers. It suggests that Americans are getting worried about the trade war and other issues. That reading fell from 98.4 in July to 89.8 in August. It’s the lowest it’s been since October 2016.

Mortgage Rates

Mortgage rates ticked slightly higher this last week. Freddie Mac says, the average 30-year fixed-rate mortgage rose 3 basis points to 3.58%.

In other news making headlines…

Recession Fears Grow But Housing Risk is Low

While there has been more talk of a recession, most economists surveyed by the National Association for Business Economics don’t believe it will happen this year. And they don’t think it will impact the housing market like it did the last time.

Only 2% of those surveyed think it will begin this year, while 38% say 2020, and 25% say 2021. 14% don’t expect a downturn until after that. They say the housing market still shows plenty of strength and that due to a number of factors, like more qualified buyers, they don’t believe prices will fall off a cliff like they did before.

They also believe an upcoming recession would be less painful. Realtor.com’s George Ratiu says, “This is going to be a much shorter recession than the last one. I don’t think the next recession will be a repeat of 2008. The housing market is in a better position.”

Recession as “Self-Fulfilling Prophecy”

The economist who authored the “theory of money anxiety” believes that “fear” of a recession could become a self-fulfilling prophecy. Analyticom president, Dan Geller, says that when consumers start worrying about a recession, they lose confidence and spend less money. He says that a 5% reduction in consumer spending would trim 3.5% off the GDP and trigger a recession. (3)

Geller offered an example in a HousingWire blog. He said consumer sentiment dropped 6.4% in August as compared to July. And that probably correlates to all the headlines about a possible recession due to an inverted yield curve, the trade war, and other factors.

Construction Labor Shortage

A new survey shows, 80% of U.S. contractors are having a hard time finding employees. Associated General Contractors of America conducted the survey and received responses from about 2,000 contractors. It says that many contractors are paying employees more to attract good workers. That’s pushing construction costs higher. The shortage is also increasing construction timelines. Suggestions to solve the problem include a call for more immigrant workers, college grants to help train construction workers, and company apprenticeship programs.

The cost of building materials was up .7% in July, but that’s after a .1% decline for each month over the last year. The National Association of Home Builders says, the price of residential construction in 2019 is 2.8% which is about half the pace of cost increases last year.

Optimal Settings for Air Conditioner 

If you’re trying to find the perfect setting for your air conditioner, Energy Star has come up with a number. It says the ideal setting for a balance between cooling and energy efficiency is 78 degrees Fahrenheit. That’s when you are at home.

When you’re away from home, you should turn it up to 85 degrees, and when you are sleeping you should turn it down to 82. If those settings don’t work for you, try adjusting them one degree at a time. Be sure to allow enough time for the temperature to adjust, before you make any further changes. The Department of Energy claims that you can save 3% on your electricity bill for every one degree that you raise the temperature of your central air conditioning system.


(1) MarketWatch Report

(2) Home Sales Fall

(3) HousingWire Article

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