Talking about the economic outlook for South Carolina, the latest on home prices from Case-Shiller, first time home buyer data, economic confidence, GDP and more…
From SC Department Commerce:
Strong 2016 for SC Export Growth
The value of South Carolina exports rose 1.3 percent in 2016 to $31.3 billion, significantly outperforming the results for exports nationally, which shrank 3.3 percent. This marks the 11th time in the last 14 years that the growth in South Carolina exports’ value has exceeded that of the nation as a whole. South Carolina was one of only 15 states that reported positive year-over-year growth in 2016. Driving the state’s export performance were its markedly increased shipments of aircraft, with additional support coming from a boost to meat shipments.
South Carolina Real Estate
The South Carolina residential real estate market seemed to undergo a winter dip in January 2017 in terms of sales, with closings down 24.1 percent from the prior month. Compared to January 2016, however, the market showed multiple improvements. January 2017 yielded 4,660 residential real estate closings, a 2.9 percent bump from one year ago. The median sales price climbed 5.3 percent year-over-year. Additionally, building permits seemed to forecast strong growth to come, as the number issued rose dramatically, increasing 35.2 percent versus January 2016.
American Enterprise Institute reported that in November 2016:
- 51.6% of government guaranteed and private sector mortgages went to first time home buyers
- 55% of first time home buyer loans were subprime or high risk
- 71% of first time home buyers put down 5% or less
- 29% of first time buyers had Debt-to-Income ratios greater than the QM limit of 43%
- 22% of first time home buyers had a credit score below 660
- 97% of first time home buyers got a 30 year mortgage
Very interesting stuff as they said that credit is easing at the same time that first time home buyers are taking on additional risks to keep up with rising home prices. After the housing crash, credit did get too tight. While it is good that credit is loosening, I hope the painful lessons are not forgotten.
Americans’ confidence in the U.S. economy last week is about even with what it was the previous week. Gallup’s U.S. Economic Confidence Index averaged +9 for the week ending Feb. 26.
The latest weekly average is two points higher than the prior week’s +7 index reading, though not as high as scores averaging +10 to +14 through most of January.
President Donald Trump’s inauguration in late January coincided with the index’s reaching highs not seen before in Gallup’s nine years of tracking economic confidence. The index has retreated slightly in February but remains higher than all but a few readings Gallup has tracked since 2008. The Economic Confidence Index has been in positive territory for 15 consecutive weeks.
Hopefully, this increased confidence will translate into robust economic growth. Only time will tell…
Real gross domestic product (GDP) increased at an annual rate of 1.9 percent in the fourth quarter of 2016, according to the “second” estimate released by the Bureau of Economic Analysis. In the third quarter, real GDP increased 3.5 percent.
The general picture of economic growth remains the same; the increase in personal consumption expenditures was larger and increases in state and local government spending and in nonresidential fixed investment were smaller than previously estimated.
The increase in real GDP in the fourth quarter reflected positive contributions from personal consumption expenditures (PCE), private inventory investment, residential fixed investment, nonresidential fixed investment, and state and local government spending. These increases were partly offset by negative contributions from exports and federal government spending. Imports, which are a subtraction in the calculation of GDP increased.
The deceleration in real GDP in the fourth quarter primarily reflected a downturn in exports, an acceleration in imports, and a downturn in federal government spending that were partly offset by an upturn in residential fixed investment, an acceleration in private inventory investment, and an upturn in state and local government spending.
This is weaker than some thought but until we see several bad reports I would not panic. While the economy did expand at a slower pace, it still appears to be on a moderate growth path.
Case-Shiller National Home Price Index Hits 30 Month High
Year Over Year
The S&P CoreLogic Case-Shiller U.S. National Home Price NSA Index, covering all nine U.S. census divisions, reported a 5.8% annual gain in December, up from 5.6% last month and setting a 30-month high. The 10-City Composite posted a 4.9% annual increase, up from 4.4% the previous month. The 20-City Composite reported a year-over-year gain of 5.6%, up from 5.2% in November.
Month Over Month
Before seasonal adjustment, the National Index posted a month-over-month gain of 0.2% in December. Both the 10-City Composite and the 20-City Composite indices posted 0.3% increases. After seasonal adjustment, the National Index recorded a 0.7% month-over-month increase, while the 10-City and 20-City Composites each reported 0.9% month-over-month increases.
David M. Blitzer, Managing Director and Chairman of the Index Committee at S&P Dow Jones Indices said:
Home prices continue to advance, with the national average rising faster than at any time in the last two-and-a-half years. With all 20 cities seeing prices rise over the last year, questions about whether this is a normal housing market or if prices could be heading for a fall are natural.
One factor behind rising home prices is low inventory. While sales of existing single family homes passed five million units at annual rates in January, the highest since 2007, the inventory of homes for sales remains quite low with a 3.6 month supply. New home sales at 555,000 in 2016 are up from recent years but remain below the average pace of 700,000 per year since 1990. Another factor supporting rising home prices is mortgage rates. A 30-year fixed rate mortgage today is 4.2% compared to the 6.4% average since 1990.
Remember this is talking about U.S. home prices. While it is a very important indicator for the BIG picture, it is not the local market data that buyers and sellers need. Speaking of which…
If some American banks are too big to fail, others have begun to feel they’re too small to succeed.
That argument makes a convenient stalking horse for the largest banks, now the fight over regulation is back on. So it’s viewed with great suspicion by Democrats. President Donald Trump announced his intention to do a “big number” on the Dodd-Frank Act, the most sweeping financial reform since the Great Depression, before an audience of small-business leaders.
They’re the kind of borrowers who have been shunted aside, the data show. Main Street-style business loans of $1 million or less are growing now, by 5 percent in the 12 months through September. But that’s after several years of contraction, and the recovery came later, and slower, than the overall market. So proportionally they’ve fallen: to 20 percent of total business credit from 35 percent in 2004.
Smaller banks say they’re struggling with added labor costs after adding compliance staff, while big banks spend millions to automate those decisions.
It is going to be very hard to find a middle ground between over regulation and too little. But that impossible sounding task is what must be done…
Recent reports indicate that consumer price inflation is rising, reigniting the reflation debate — are we shifting from a world of low consumer price inflation to one of moderate inflation? Rising inflation would have a significant impact on housing markets by driving up mortgage interest rates. There are three scenarios corresponding to higher inflation, lower inflation, and stable inflation.
First check out where Freddie thinks we are headed:
Now look at where things may end based upon what inflation does:
US REMODELING INDUSTRY POISED FOR GROWTH
The residential remodeling market—spending on improvements and maintenance to the owner and rental stock—reached a record high of $340 billion in 2015 surpassing its previous peak in 2007 by seven percent in nominal terms.
Homeowner spending on improvements is projected to increase 2.0 percent per year on average through 2025 after adjusting for inflation. Almost half of these gains are expected to result from an increase in average spending per homeowner as incomes and home values rise.
Homeowner improvement expenditures are concentrated in metro areas with high house values and household incomes, however continued growth in top markets may be challenged by the lack of affordable options for potential homebuyers.
OLDER HOMEOWNERS WILL DRIVE REMODELING GAINS
Older homeowners will continue to dominate the remodeling market, as they make investments to age in place safely and comfortably. Expenditures by homeowners age 55 and over are expected to account for more than three-quarters of market growth over the decade.
The share of aggregate improvement spending by homeowners age 55 and over is projected to reach 56 percent by 2025, up from only 31 percent in 2005.
A disproportionate share of future household growth will be among the types of owners that traditionally spend less on home improvements: those age 65 and over, minority households, and those without young children. In 2015, owners age 65 and over spent 17 percent less on home improvements than the typical homeowner, while minority and single-person owners spent over 20 percent less.
From Richmond Fed:
Activity in the service sector continued to improve in February. Revenues rose more widely this month among services firms. The expansion slowed at retail establishments, despite continued strength in big-ticket sales. Shopper traffic fell and inventories rose modestly. Survey respondents were buoyant about business prospects for the six months ahead.
Reports of increases in the number of employees moderated. Additionally, wage increases were less prevalent, according to surveyed executives.
Service sector prices rose more slowly on average this month. Expectations were for more rapid average price increases during the next six months.
Nice! Remember, South Carolina is in the Fifth District, which is the Richmond Fed.
Also from the Richmond Fed:
Fifth District manufacturing activity expanded in February, as shipments increased and the volume of new orders rose broadly. Employment gains were more common and longer workweeks prevailed. Wage increases were more widespread. Prices paid for inputs rose more rapidly than in January, and prices received also accelerated.
Looking to the six months ahead, manufacturing executives anticipated robust business conditions, with strong growth in shipments and new orders, along with higher capacity utilization. Expectations moderated for vendor lead times. Manufacturers’ outlook on employment was similar to a month ago, with expectations for increased hiring and additional wage growth.
Survey respondents expected prices of inputs to moderate compared to the current month and prices received to rise slightly faster in the six months ahead.
Also very nice!
The Conference Board Consumer Confidence Index®, which had declined moderately in January, increased in February. Consumer confidence increased in February and remains at a 15-year high (July 2001, 116.3). Consumers rated current business and labor market conditions more favorably this month than in January. Expectations improved regarding the short-term outlook for business, and to a lesser degree jobs and income prospects. Overall, consumers expect the economy to continue expanding in the months ahead.
Awesome stuff to end today’s post with!
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