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If the nation falls off “fiscal cliff,” housing recovery will be delayed

The National Association of Realtors’ Chief Economist is offering up predictions such as if credit doesn’t tighten further and we don’t fall off of the “fiscal cliff,” a housing recovery could be sooner than later.

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NAR tells the future

NAR tells the future

When will housing recover?

As we saw leading up The Great Recession, and throughout its devastation, economists, professionals, and lay people alike had strong opinions as to when housing would hit rock bottom, but most are now putting their effort behind calling the recovery, as it appears housing has recently found its bottom. Keep in mind that when a “recovery” is suggested as pending, it is not only a long road to get there, many people do not understand that “recovery” simply means getting back to where the sector was before it crashed, not necessarily to its peak far prior to the crash.

At the 2012 Realtors’ Conference and Expo, Dr. Lawrence Yun, the Chief Economist at the National Association of Realtors said that the housing market recovery should “continue through coming years” unless (yes, unless) the nation falls off of the “fiscal cliff,” and assuming that there are no further limitations on the availability of mortgage credit. Dr. Yun pointed to improving existing and new home sales and housing starts as all seeing “notable gains this year in contrast with suppressed activity in the previous four years, and all of the major home price measures are showing sustained increases.”

“Disruption from Sandy likely will be temporary, notably in New Jersey and New York, but the market is likely to pick up speed within a few months with the need to build new homes in damaged areas,” Dr. Yun added.

Inflation, spending, qualitative easing

A real estate recovery relies upon more than just Realtors pounding the pavement for sales, and more than mortgage brokers financing deals – the recovery relies on our federal government and other economic indicators that affect housing.

Dr. Yun says he sees no threatening signs for inflation in 2013, but projects it to be in the range of four to six percent by 2015. “The huge federal budget deficit is likely to push up borrowing costs and raise inflation well above 2 percent.”

Rising rents, qualitative easing (the printing of money), federal spending outpacing revenue, and a national debt equal to roughly 10 percent of Gross Domestic Product are all raising inflationary pressures, Dr. Yun pointed out.

Interest rates and home prices

Mortgage interest rates are forecast to gradually rise and to average 4.0 percent next year, and 4.6 percent in 2014 from the inflationary pressure.

With rising demand and an ongoing decline in housing inventory, Dr. Yun expects “meaningfully higher home prices.” The national median existing-home price should rise 6.0 percent to $176,100 for all of 2012, and increase another 5.1 percent next year to $185,200; comparable gains are seen in 2014.

“Real estate will be a hedge against inflation, with values rising 15 percent cumulatively over the next three years, also meaning there will be fewer upside-down home owners,” Dr. Yun said. “Today is a perfect opportunity for moderate-income renters to become successful home owners, but stringent mortgage credit conditions are holding them back.”

Forecasting existing and new home sales

According to NAR, existing-home sales this year are forecast to rise 9.0 percent to 4.64 million, followed by an 8.7 percent increase to 5.05 million in 2013; a total of about 5.3 million are seen in 2014.

New-home sales are expected to increase to 368,000 this year from a record low 301,000 in 2011, and grow strongly to 575,000 in 2013. Housing starts are forecast to rise to 776,000 in 2012 from 612,000 last year, and reach 1.13 million next year.

“The growth in new construction sounds very impressive, and it does mark a genuine recovery, but it must be kept in mind that the anticipated volume remains below long-term underlying demand,” Dr. Yun said. “Unless building activity returns to normal levels in the next couple years, housing shortages could cause home prices to accelerate, and the movement of home prices will be closely tied to the level of housing starts.”

“Home sales and construction activity depend on steady job growth, which we are seeing, but thus far we’ve only regained half of the jobs lost during the recession,” Dr. Yun added.

GDP and unemployment in 2013

Dr. Yun projects growth in Gross Domestic Product to be 2.1 percent this year and 2.5 percent in 2013. The unemployment rate is showing slow, steady progress and is expected to decline to about 7.6 percent around the end of 2013.

“Of course these projections assume Congress will largely avoid the ‘fiscal cliff’ scenario,” Dr. Yun said. “While we’re hopeful that something can be accomplished, the alternative would be a likely recession, so automatic spending cuts and tax increases need to be addressed quickly.”

Regardless, Dr. Yun said that four years from now there will be an even greater disparity in wealth distribution. “People who purchased homes at low prices in the past couple years, including many investors, can expect healthy growth in home equity over the next four years, while renters who were unable to get into the market will be in a weaker position because they are unable to accumulate wealth,” he said. “Not only will renters miss out on the price gains, but they’ll also face rents rising at faster rates.”

A potentially uneven recovery

Mark Vitner, managing director and senior economist at Wells Fargo said during the NAR Conference that the fiscal cliff is the biggest situation that needs to be addressed. “Beyond concerns about the fiscal cliff, the economic improvement seems to be broadening,” he said.

“Housing will strengthen in 2013 even if the economy weakens because there is a demand for more construction, and the demand for apartments is rising at a faster rate than the need for more single-family homes,” Vitner forecast. “Unfortunately, apartment construction is focused on about 15 submarkets, so additions to supply will be uneven.

Even with declining market shares of foreclosures and short sales, Vitner said they will continue. “Distressed homes right now are like an after-Christmas sale – most of the best stuff has been picked over, but make no mistake they’ll be with us for a while.”

Dr. Yun projects the market share of distressed sales will decline from about 25 percent in 2012 to 8 percent in 2014.

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18 Comments

18 Comments

  1. Steve Scott

    November 12, 2012 at 6:13 pm

    Like they did during the bubble…

  2. AgentGenius

    November 13, 2012 at 11:32 am

    i think they learned a lesson, got new forecasters. we don’t agree 100% with their forecast, but we’re pretty skeptical overall.

  3. Steve Scott

    November 13, 2012 at 12:43 pm

    I am too.. skeptical that is… and I think the graphic you put up is appropriate… 😉

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Economic News

Boomers retirement may be the true reason behind the labor shortage

(ECONOMY) Millennials and Gen Z were quick to be blamed for the labor shortage, citing lazy work ethic- the cause could actually be Boomers retirement.

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Older man pictured in cafe with laptop nearby representing boomers retirement.

In July, we reported on the Great Resignation. With record numbers of resignations, there’s a huge labor shortage in the United States. Although there were many speculations about the reasons why, from “lazy” millennials to the number of deaths from Covid. Just recently, CNN reported that in November another 3.6 million Americans left the labor force. It’s been suggested that the younger generations don’t want to work but retiring Boomers might be the bigger culprit.

Why Boomers are leaving the labor force

CNN Business reports that 90% of the Americans who left the workplace were over 55 years old. It’s now being suggested that many of the people who have left the labor force since the beginning of the pandemic were older Americans, not Millennials or Gen Z, as we originally thought. Here are the reasons why:

  • Boomers are more concerned about catching COVID-19 than their younger counterparts, so they aren’t returning to work. Boomers are less willing to risk their health.
  • The robust real estate market has benefitted Boomers, who have more equity in their homes. Boomers have more options on the table than just returning to work.
  • Employers aren’t creating or posting jobs that lure people out of retirement or those near retirement age.

As Boomers retire, how does this impact the overall labor economy?

According to CNN Business, there are signs that the labor shortage is abating. Employers are starting to see record number of applicants to most posted jobs. FedEx, for example, just got 111,000 applications in one week, the highest it has ever recorded. The U.S. Bureau of Labor Statistics projects that the pandemic-induced increase in retirement is only temporary. People who retired due to the risk of the pandemic will return to work as new strategies emerge to reduce the risk to their health. With new varients popping up, we will have to keep an eye on how the trend ultimately plays out.

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Economic News

Is the real estate industry endorsing Carson’s nomination to HUD?

(BUSINESS NEWS) Ben Carson’s initial appointment to HUD was controversial given his lack of experience in housing, but what is the pulse now?

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NAR strongly backs Dr. Carson’s nomination

When President-Elect Donald Trump put forth Dr. Ben Carson’s name as the nominee for Secretary of Housing and Urban Development, NAR President William E. Brown said, “While we’ve made great strides in recent years, far more can be done to put the dream of homeownership in reach for more Americans.”

At the time of nomination, the National Association of Realtors (the largest trade organization in the nation) offered a positive tone regarding Dr. Carson and said the industry looks forward to working with him. But does that hold true today?

The confirmation hearings yesterday were far less controversial than one would expect, especially in light of how many initially reacted to his nomination. Given his lack of experience in housing, questions seemed to often center around protecting the LGBT community and veterans, both of which he pledged to support.

In fact, Dr. Carson said the Fair Housing Act is “one of the best pieces of legislation we’ve ever had in this country,” promising to issue a “world-class plan” for housing upon his confirmation…

>>>>>Click to continue reading…<<<<<

#CarsonHUD

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Economic News

Job openings hit 14-year high, signaling economic improvement

The volume of job openings is improving, but not across all industries. The overall economy is improving, but not evenly across all career paths.

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young executives

job openings

Job openings hit a high point

To understand the overall business climate, the U.S. Labor Department studies employment, today releasing data specific to job vacancies. According to the department’s Job Openings and Labor Turnover Survey (JOLT) for April, job openings rose to 5.38 million, the highest seen since December 2000, and a significant jump from March’s 5.11 million vacancies. Although a lagging indicator, it shows strength in the labor market.

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The Labor Department reports that the number of hires in April fell to 5 million, which indicates a weak point in the strong report, and although the volume remains near recent highs, this indicates a talent gap and highlights the number of people who have left the labor market and given up on looking for a job.

Good news, bad news, depending on your profession

That said, another recent Department report notes that employers added 221,000 jobs in April and 280,000 in May, but the additions are not evenly spread across industries. Construction jobs rose in April, but dipped in professional and business services, hospitality, trade, and transportation utilities. In other words, white collar jobs are down, blue collar jobs are up, which is good or bad news depending on your profession.

Additionally, the volume of people quitting their jobs was 2.7 million in April compared to the seven-year high of 2.8 million in March. Economists follow this number as a metric for gauging employee confidence in finding their next job.

What’s next

If you’re in the market for a job, there are an increasing number of openings, so your chance of getting hired is improving, but there is a caveat – not all industries are enjoying improvement.

If you’re hiring talent, you’ll still get endless resumes, but there appears to be a growing talent gap for non-labor jobs, so you’re not alone in struggling to find the right candidate.

Economists suspect the jobs market will continue to improve as a whole, but this data does not pertain to every industry.

#JobOpenings

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