National Market Update

So many things define a "good" or "bad" economy. And it's always topic of discussion whether talking about finding a job, gas prices, or deciding when to buy or sell a home.
Lawrence Yun, the National Association of Realtors (NAR) Chief Economist and Senior VP recently wrote a blog giving us a recap of the year so far and a forecast for the 3rd and 4th quarters.
I took some highlights and shared them below.

The Economy

• GDP growth was slightly negative in the first quarter but will pick up in the second half.  For the year as whole, GDP will expand at 2.1 percent.  Not bad but not great.  A slow hum.
• Consumer spending will open up because of lower gasoline prices.  Personal consumption expenditure grew at 2.1 percent rate in the first quarter.  Look for 3 percent growth rate in the second half.
  • Auto sales dropped a bit in the first quarter because of heavy snow, but will ramp up nicely in the second half.
  • Spending for household furnishing and equipment has been solid, growing 6 percent in the first quarter after clocking 6 percent in the prior.  Recovering housing sector is the big reason for the nice numbers.
  • Spending at restaurants was flat.  That is why retail vacancy rates are not notching down.
  • Online shopping is up solidly.  That is why industrial and warehouse vacancy rates are coming down.
  • Spending for health care grew at 5 percent in the first quarter, marking two consecutive quarters of fast growth.  The Affordable Care Act has expanded health care demand.  The important question for the future is will the supply of new doctors and nurses expand to meet this rising demand or will it lead to medical care shortage?
• Business spending was flat in the first quarter but will surely rise because of large cash holdings and high profits.
• All in all, GDP will grow by 2.5 to 3 percent in the second half.  That translates into jobs.  A total of 2.5 million net new jobs are likely to be created this year.
  • Unemployment insurance filings have been rising in oil-producing states of Texas and North Dakota.
  • Unemployment insurance filings for the country as a whole have been falling, which implies a lower level of fresh layoffs and factory closings.  That assures continuing solid job growth in the second half of the year.
• We have to acknowledge that not all is fine with the labor market.  The part-time jobs remain elevated and wage growth remains sluggish with only 2 percent annual growth.  There are signs of tightening labor supply and the bidding up of wages.  Wages are to rise by 3 percent by early next year.  The total income of the country and the total number of jobs are on the rise.

The Housing Market

• Existing-home sales in May hit the highest mark since 2009, when there had been a homebuyer tax credit … remember, buy a home and get $8,000 from Uncle Sam.  This tax credit is no longer available but the improving economy is providing the necessary incentive and financial capacity to buy.  Meanwhile new home sales hit a seven-year high and housing permits to build new homes hit an eight-year high.  Pending contracts to buy existing homes hit a nine-year high.
• Buyers are coming back in force.  One factor for the recent surge could have been due to the rising mortgage rates.  As nearly always happens, the initial phase of rising rates nudges people to make decision now rather than wait later when the rates could be higher still.
• The first-time buyers are scooping up properties with 32 percent of all buyers being as such compared to only 27 percent one year ago.  A lower fee on FHA mortgages is helping.
• There is no massive shadow inventory that can disrupt the market.  The number of distressed home sales has been steadily falling – now accounting for only 10 percent of all transactions.  It will fall further in the upcoming months.  There is simply far fewer mortgages in the serious delinquent stage (of not being current for 3 or more months).  In fact, if one specializes in foreclosure or short sales, it is time to change the business model.
• The Federal Reserve will be raising short-term rates soon.  September is a maybe, but it’s more likely to be in October.  The Fed will also signal the continual raising of rates over the next two years.  This sentiment has already pushed up mortgage rates.  They are bound to rise further, particularly if inflation surprises on the upside.
• Mortgage rates at 4.3% to 4.5% by the year end and easily surpassing 5% by the year end of 2016.

Posted in Economic Updates, by Lawrence Yun, PhD., Chief Economist and Senior Vice President on July 1, 2015

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Keep in mind, this is national data. Philadelphia region and even specific neighborhoods throughout Philadelphia in PA & NJ have various housing markets. If you're looking to buy or sell, speak with a local professional that can help guide you. Contact me if you'd like more information!