National Economic Outlook - December 2013

National Economic Outlook - December 2013

Written By:
Ingo Winzer, President

Local Market Monitor

Revised estimates of Gross Domestic Product for the third quarter show the economy growing at a 3.6 percent annual rate. This is encouraging but it's not proof of better growth, because inventories increased and personal spending decreased. If consumers don't buy stuff, those bigger inventories will just sit there.

It's easy to read too much into GDP details, but two developments may have longer-term importance for real estate values. One is that state and local government spending is picking up, after years of cutbacks. The other is that there isn't yet much new home construction. Renewed state and local spending will provide more jobs - and demand for housing - while the lack of new construction means that prices for the housing that already exists will be going up.

To a large extent, the home price increases that have been recorded in many markets in the last year or two are the result of investors buying up housing cheap and either flipping it or turning it into rentals. There hasn't been much demand for new housing. But this means that when demand again picks up it will quickly run up against an insufficient supply and that will mean years of sustained price increases.

Continuing the same level of growth we've had for months, the number of jobs in November was up 1.7 percent from last year. Jobs were up 3.4 percent in business services, 3.3 percent in restaurants, 3.0 percent in construction, 2.2 percent in retail trade, 1.7 percent in healthcare and 0.7 percent in manufacturing. Government jobs were flat, a small increase at the state and local level offset by a loss of federal jobs.