National Economic Outlook - November 2013

Written By:
Ingo Winzer, President

Local Market Monitor

It's difficult to know how much the government shutdown affected the jobs figures for October, which are mainly measured at mid-month. Government employees are counted as employed even if furloughed, and the loss of private sector jobs - from reduced government spending - is probably spread throughout the economy.

The number of jobs in October was up 1.7 percent from last year, continuing the pace of previous months. Jobs were up 3.5 percent in business services, 2.5 percent in retail trade, 3.4 percent at restaurants, 1.6 percent in healthcare and basically flat in manufacturing and government.

The relatively low growth in healthcare jobs is worrying because the sector is so large, with 20 million jobs. Early last year the rate of job creation in healthcare was 2.4 percent, at the start of this year it was 2.0 percent, and now it's 1.6 percent. Healthcare has been one of the few areas where people with low skills can find low-paid but stable jobs that allow them to become renters.

A different snapshot of the economy comes from GDP figures for the third quarter, which showed the economy growing at a 2.8 percent rate. Small but significant contributions were made by exports and by increased state and local spending, which we haven't seen for years. 

National Economic Outlook - October 2013

National Economic Outlook - October 2013

 

Written By:
Ingo Winzer, President

Local Market Monitor

The government shutdown means there are no statistics for us to analyze or comment on. So it's a good time to discuss the reliability of the data we use to understand real estate markets.

The most well-know statistic for real estate is home prices; particularly, how much home prices have changed in the past year. Sophisticated methods use actual sales data to calculate this number for the country as a whole and for local markets.

A very big problem right now is that the sales data do not tell us how the value of the average house changed in the past year, because many of the actual sales in the past year were not of average homes. They were sales of foreclosed properties.

The contamination of the data with foreclosures makes it seem that home values are sharply higher in many markets, and that the housing bust is quickly turning into another boom. I believe, instead, that we are in for a long period of very modest value increases that only becomes apparent once the foreclosures are washed out of the system.

We won't know for a while.

National Economic Outlook - September 2013

National Economic Outlook - September 2013

 

Written By:
Ingo Winzer, President

Local Market Monitor

The rate of annual job growth in August, 1.7 percent, was basically the same as in previous months. We had better get used to the idea that this is the new normal, because there probably won't be much help from the lagging government and construction sectors.

Budget difficulties will prevent any meaningful increase in government spending, even though local and state revenues are now in better shape. The recession revealed the extent of unfunded pension liabilities for public employees, which will absorb any extra dollars.

The expected recovery in the construction sector is running up against new realities that will slow hiring. One of these is the falling homeownership rate, currently 65 percent - down from 69 percent in 2004-05 - and almost certainly going lower. Falling homeownership just means that more people rent, but for jobs in construction it means slow hiring because apartments can be built with fewer workers. Despite higher home prices this year, only 65 percent of new building permits were for single-family homes, by far the lowest percent in a decade.

Another unhappy reality for construction is that the number of potential home buyers will be restricted for years because so many existing homeowners are either directly underwater with their mortgage or are so far in debt with home equity loans that it amounts to the same thing. When you owe more than your home is worth, you can't afford to sell it, which means you can't afford to buy a new one, either. Americans took on $600 billion of home equity debt and have paid down only 20 percent of that.

Jobs were flat in manufacturing, despite more car production, as consumers move away from PCs. Jobs in retail were up a solid 2.7 percent, jobs in restaurants an even better 3.5 percent. Business services jobs were up 3.4 percent, healthcare jobs up 2 percent. The unemployment rate dropped to 7.3 percent.

National Economic Outlook - August 2013

National Economic Outlook - August 2013

 

Written By:
Ingo Winzer, President

Local Market Monitor

The pace of job growth in July was unchanged from the 1.7 percent annual rate of previous months, but the details suggest an economy that will do modestly better for the rest of the year. Most importantly, jobs in business services were up 3.5 percent from last year.

Business services is one of the largest sectors of the economy, on a par with health care and government, and bigger than retail or manufacturing. Earlier this year it was growing at a 3 percent rate, in the last few months around 3.5 percent; it seems only a small increase but it means that businesses are expanding again.

A slightly disturbing sign is that jobs in manufacturing, which were growing at a 2 percent rate early this year, are now not increasing at all. New jobs in car manufacture are offset by job losses in computers and electronics.

In other sectors, jobs were flat in government, up 1.8 percent in health care, up 2.4 percent in retail, and up almost 4 percent at restaurants. We've noted before that many of these jobs have low pay, boosting rentals more than home buying.

Unemployment fell to 7.4 percent. Gross domestic product grew 1.7 percent in the second quarter. Fortunately, government spending was not down as much as in the first quarter, but surprisingly large imports took 1.5 percent off what otherwise was very good growth.

National Economic Outlook - July 2013

 

Written By:
Ingo Winzer, President

Local Market Monitor

 

Better estimates of Gross Domestic Product show that the US economy grew 1.8 percent in the first quarter, despite a negative 1 percent drag courtesy of the government. Consumers did their part, with 1.8 percent growth, businesses added 1 percent in the form of equipment, inventories and construction, which would have yielded a solid 2.8 percent growth if government had just kept spending flat.

Maybe we can only cut government spending when everything else is already going poorly, so we all suffer the pain.

 

Notably missing in GDP so far is any meaningful pickup in construction. But that may soon change because the soft pickup in housing demand will shortly run up against the hard fact that very little was built in the last five years. The fact that home prices have bottomed out in most local markets shows that very little excess inventory is left.

 

An encouraging sign is the 3 percent increase in construction jobs in the past year. Two million construction jobs were lost in the recession - that's a lot to make up for - but 200,000 reappeared in the last 12 months.

Overall, jobs since last June grew 1.7 percent. In addition to construction, there were gains in retail trade, 2.1 percent; business services, 3.2 percent; health care 1.9 percent; hotels and restaurants, 3.4%; and even finance, 1.5 percent. But jobs were almost flat in manufacturing and government.

College Costs and the Housing Market

Written By:
Ingo Winzer, President

Local Market Monitor
 

If you just took out a home equity loan to fund your daughter's college education, would you be in the housing market anytime soon, either buying or selling?

 

If you just graduated from college with $30,000 of debt, would you be saving up to buy a home anytime soon? How about if you graduated from law school but now owed $100,000?

 

College costs and the government loan programs that have aided and abetted what amounts to an extortion racket will dampen the housing market for a generation. To get a good job you need a degree, so colleges have raised prices with impunity. Can't afford it, kid? Go borrow from your Uncle Sam. No wonder college expenses have soared far above what's needed to provide a decent education.

 

Unlike the health care system, where payers like insurance companies and Medicare act as a brake on costs, the college education system has no brakes at all. $100 billion is added every year to an outstanding student debt level of $1 trillion. If nothing is done, this monster will wreck the housing industry.

National Economic Outlook

Written By:
Ingo Winzer, President

Local Market Monitor
 

The economic recession only lasted a year, but there wasn't a recovery for homes because prices had climbed much too high and builders had built way too many of them. Prices had to fall, not just back to a "normal" level, but to an even lower level so that the large inventory of excess homes could be moved - a sort of clearance sale. We're not yet done with that sale - see the large number of mortgages still delinquent - but enough has been cleared out so that prices can drift up to a more normal level.

 

The accuracy of home price statistics is questionable right now, because of the large number of foreclosure sales, but the overall situation is clear. Prices are up in 42 percent of the 315 markets we cover, falling in just 9 percent. A year ago, prices were up in 14 percent of our markets, still falling in almost half. The corner has definitely been turned.

How quickly this housing recovery will proceed is still not clear, however, because of the tenuous finances of homeowners - whose $500 billion of equity loans keeps them out of the housing market - and the slow pace of job growth that deters new home buyers.

The number of jobs in May was up 1.6 percent over last year. Jobs were up 0.4 percent in manufacturing, 1.7 percent in retail, 1.9 percent in health care, 3.3 percent in restaurants, and 3.6 percent in business services. Government jobs were down 0.3 percent because of big cuts at the federal level.

 About 45 percent of the 2.1 million new jobs created in the past year are in fields like retail, restaurants and health care that pay low wages. (The overall percent of low-paying new jobs is much higher.) The people who have these job will not be buying a house, they will be renting. We are in for a long period where renting is the preferred option of new job holders.