Looking at the latest statement from the FOMC, new home sales, housing demand, distressed sales plus much more…
The Fed Speaks
The Fed announced they are keeping interest rates unchanged amid growing concerns about the global economy. The latest FOMC statement indicated that the target of the Fed funds rate will stay the same as everyone expected.
Last month, the Fed raised rates for the first time in a decade and the world did NOT come to an end.
However, after this announcement Wall Street reacted badly with a sharp decline. Mortgage rates also fell after the Fed’s statement. I suggest reaching out to your mortgage professional as rates change constantly.
The Fed said that it is closely monitoring global economic and financial developments. They also said that despite an improving labor market, economic growth slowed late last year.
The Fed said they expect inflation will stay below their 2% target in the near term. The Fed may want to raise the rate but because inflation is low, it can’t.
The Fed keeps saying they will raise rates at a moderate pace.
New Home Sales Increase
Good news as new home sales in December were 9.9% higher than December 2014. New home sales were also above expectations after 9 months of coming in below expectations. This is the highest level for new home sales in 10 months.
Not only was December a good month, 2015 was a good year for new home sales. New home sales in 2015 increased to the highest level since 2007. New home sales in 2015 were 14.5% higher than the 2014 level.
Despite this increase, new home sales are still historically low. The chart below clearly shows this:
The median sales price of new houses sold in December 2015 was $288,900. The average sales price was $346,400.
A Shift in Housing Demand
A shift sounds great as long as it is a sustainable shift:
New household formation is improving and closing in on its long-term average of 1.2 million units
In the years during and since the Financial Crisis and Great Recession, new household formation slowed dramatically as young adults remained living with parents and fewer people immigrated into the U.S.
From 2008 through 2010, only 509 thousand net new households were formed on average, but from 2011 on that figure increased to nearly 1.2 million households per year – the long-run average going back to 1990.
The number of households headed by someone 50 or older has grown the fastest as the overall population ages, but the number of younger households has also been increasing in recent years. Most new households being formed are renter households.
More household formation is great but I hope we see more households that are owners and NOT renters.
Be Careful What You Wish For
The current political cycle reveals that many Americans are demanding unprecedented accountability from their elected leaders concerning wasteful spending and policies that have labeled our nation “The United Give Me States of America.”
Read the rest at What Do Most of America’s Voters Really Want?
Have You Heard of The Big Lie?
I read an article the other day on HousingWire by Ben Lane:
If Cal Thomas is to be believed, this country is on the precipice of another housing crisis. Instead of providing “expert” analysis of an issue, he ascribes tired political ideologies onto it, turning Fannie Mae’s program, and housing in general, into just another political football.
More or less, someone on Fox News started repeating the Big Lie:
Rather than admit the error of their ways, those whose helped cause the crisis are engaged in an active campaign to rewrite history.
Despite the banks and Wall Street wanting the blame for the housing crash to rest solely on the shoulders of others…
The truth is there is plenty of blame to go around.
It is not just irresponsible or uneducated buyers that caused the real estate market to crash.
You can repeat the same lie 100 times but it never gets any more true…
Rely on Facts Not Hype
Far too often I will Tweet something about housing and people will twist it so they can exclaim Buy a House NOW! Consider this:
The bar for housing is so low that some housing bulls might try the predictable tactic of bellowing about exponential growth portending a miraculous recovery when all that is occurring is a bump up from a pitifully low base.
Read the rest at Home Builders, New Homes Sales And The Affordability Myth
Is THIS the New Normal for Housing?
In a recent article, MPA asked KB Home CEO Jeffrey Mezger about the housing recovery now and how long before the market gets to normal:
It’s still a few years before you get back to “normal.” People ask me where are we at in the cycle. I don’t know that we’re in a cycle right now because we’re so far below the norm. Things are getting better. I don’t think we’re at risk of a bubble and I don’t think we’re late into a cycle, I think we’re just slowly recovering right now.
I wonder if what we are seeing NOW could be a new normal. I hope not but it is something to consider after 10 years of a struggling housing market.
Read the rest at KB Home CEO Jeffrey Mezger on housing market
Must Read Real Estate Blogs
Proud that the Ugly But Honest Blog is included:
This comprehensive list features 85 local and world-renowned real estate experts broken down by category – investment, marketing, economy, podcasts & more.
Find all the great blogs to read at 85 Best Real Estate Blogs to Read in 2016
Lesser Known BUT Important Economic Indicator
Bad news from the American Chemistry Council is they are seeing signs of slowing growth in their Chemical Activity Barometer. The Chemical Activity Barometer is a leading economic indicator derived from a composite index of chemical industry activity.
It increased slightly in January, rising 0.1% following a downward adjustment of 0.1% in December.
On an unadjusted basis the CAB fell 0.1% and 0.2% in December and January.
Think about how important chemicals are in manufacturing and everyday life. If the chemical industry is slowing down, it ain’t good!
The Turd in the Punch Bowl
For many Americans, buying a home is getting further out of reach. Homes are becoming less affordable. I just posted yesterday about US home prices increasing according to several different sources.
Sadly, wages / incomes are NOT increasing at the same pace as home prices.
Plus, rents are rising even faster than home prices.
This will NOT persuade more people to buy a house. It actually hurts more than it helps. People are paying so much in rent that they cannot save up a down payment.
Duck Season! Rabbit Season!
Yes, I pulled out a references to Looney Tunes…
Yesterday, I wrote about how Gallup said that Consumer Confidence decreased. But then we have the Conference Board Consumer Confidence Index saying something completely different!
The Conference Board Consumer Confidence Index improved moderately in January.
Lynn Franco, Director of Economic Indicators at The Conference Board said:
Consumer confidence improved slightly in January, following an increase in December. Consumers’ assessment of current conditions held steady, while their expectations for the next six months improved moderately. For now, consumers do not foresee the volatility in financial markets as having a negative impact on the economy.
Consumers’ optimism about the short-term outlook improved somewhat in January.
The number of consumers expecting business conditions to improve over the next six months increased while those expecting business conditions to worsen decreased.
Consumers’ outlook for the labor market was also slightly more optimistic. Those anticipating more jobs in the months ahead increased. The number of consumers expecting fewer jobs decreased slightly.
Speaking of Confidence
NAR just released the December 2015 Realtors Confidence Index.
Some interesting tidbits:
- The share of first-time home buyers increased slightly to 32%
- 15% percent of home sales were investments
- Only 8% of homes sold were distressed sales
- 24% of sales were cash deals
Please remember these are national numbers and not about just our area. Still, these are much much better than just a few years ago.
Too Big Too Few
The “Big Four” retail banks in the United States collectively hold 45% of all customer bank deposits for a total of $4.6 trillion. From 2009 to 2013, only seven new banks were formed.
A study by George Mason University found that over the last 15 years, the amount of small banks in the country has decreased by -28%.
There are now 33% more big banks today than there were in 2000.
Read more at Too Big to Trust
Foreclosure and Short Sales Down
According to CoreLogic, the number of distressed sales (foreclosures and sort sales) in November 2015 were down 1.9% compared to November 2014. Distressed sales made up 11.9% of total home sales in November 2015.
When the share of distressed sales is high, it puts downward pressure on home prices. CoreLogic said that if the current YoY decrease in the distressed sales share continues, it will reach that “normal” 2-percent mark in mid-2019.
While 2019 is a long way away, we are also a long way away from when things were much worse.
I can remember when it seemed like the only homes selling in the Anderson area were foreclosures. We are NOT out of the woods yet as there are still plenty of distressed properties for sale in Upstate SC.
If You Find a Dollar on the Sidewalk
I found another article about why low gas and oil prices are not translating into a booming economy:
Fed officials and financial news reporters are collectively wondering why the economy seems to be slowing down, even though lower oil and gasoline prices ought to be a stimulative factor. If consumers are spending less of their money on gasoline, then they ought to have more to spend on other stuff, or so goes the reasoning. So why is it not working? The problem is one of magnitude, and most analysts fail to take the time to do the math.