Looking at home prices and slowing home price growth, economic growth plus what we can look at that could predict a recession…
US Home Prices Increase 6.5%
U.S. house prices rose 1.1 percent in the second quarter of 2018 according to the Federal Housing Finance Agency (FHFA) House Price Index (HPI). House prices rose 6.5 percent from the second quarter of 2017 to the second quarter of 2018. FHFA’s seasonally adjusted monthly index for June was up 0.2 percent from May.
William Doerner, FHFA Supervisory Economist said:
Home prices rose in the second quarter but at a slower pace than we have seen for the past four years. Mortgage rates have increased by more than half a percentage point over the first six months of the year. Rates are still inexpensive from a historical standpoint, but their bump-up appears to have gently pressed the brakes on house price increases.
It isn’t just the FHFA reporting that home price growth is slowing…
Zillow also recently reported that home price growth is slowing in 20 of the 35 largest U.S. housing markets. Zillow said that home values are still growing faster in most major markets than they have historically.
While slower home price growth is good news for home buyers, we are still seeing limited inventory. Zillow said that the number of available homes in July 2018 decreased 3.9% compared to July 2017.
So will we see home price growth stall or stop? Could we even see home prices start to decrease?
No according to First American:
We’re seeing the first indications that price appreciation may be slowing, but the underlying fundamental housing market conditions support a natural moderation of house prices rather than a sharp decline.
First American pointed out that this housing market is very different than before the housing crash. The rise in prices before the crash was due to way too easy mortgage lending but today rising home prices are due to strong demand and a healthy economy.
Of course, all of these reports are talking about the US housing market. Remember that national reports will not always reflect what is happening in your local market.
Economic Growth Moderates in July
From Chicago Fed:
Led by slower growth in production-related indicators, the Chicago Fed National Activity Index (CFNAI) declined to +0.13 in July from +0.48 in June. Three of the four broad categories of indicators that make up the index decreased from June, but three of the four categories made positive contributions to the index in July. The index’s three-month moving average, CFNAI-MA3, moved down to +0.05 in July from +0.20 in June.
Do not panic! While it isn’t good to see slower growth, we are still seeing above average growth according to the Chicago Fed.
HUD Changing Some Fair Housing Regulations
In the wake of a federal court decision upholding the U.S. Department of Housing and Urban Development’s approach to rulemaking, HUD Secretary Ben Carson today announced that HUD intends to move forward in amending its 2015 Affirmatively Furthering Fair Housing (AFFH) regulations. Rather than helping local governments, this tool proved confusing, difficult to use, and frequently produced unacceptable results.
HUD Secretary Ben Carson said:
I am tremendously gratified that the Court agreed with HUD on all its legal arguments. My approach to regulations is that they should work in practice and not just in theory. Fairness is baked into our DNA. Whether it’s making sure our regulations work in the real world, or challenging discrimination where we find it, HUD stands for fairness.
This regulation may have good intentions but it appears it was cumbersome and ineffective. We all want Fair Housing laws and regulations are enforced and that no one is discriminated against.
As I often say, regulations are like hot sauce: too much will burn you but the right amount makes things better!
What Can Predict Recessions?
It sure would be awesome to be able to predict the future. Especially when it comes to the economy or a recession.
We have heard many troubling reports about the yield curve getting close to inverting. The yield curve inverts when interest rates on short term Treasuries become higher than long term Treasuries.
When the yield curve inverts, it is a pretty good indicator of a recession. The St. Louis Fed recently looked at whether the yield curve or the unemployment rate is a better indicator of a recession.
It appears we need to look at both since they both are reliable indicators of a coming recession. We may be close to the yield curve inverting BUT we also need to watch the unemployment rate.
You can rest assured that I will continue to track all things regarding the economy, housing and real estate so be sure to subscribe!