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.

Who's Telling the Truth? (a look at different home price indexes)

Written By:
Ingo Winzer, President

Local Market Monitor

 

Whose home price data should you believe? The National Association of Realtors says home prices in the past year were up 11 percent. Case-Shiller says the increase was 9 percent. The FHFA says 7 percent. And the FHFA purchase and refinance index, which we use, says 2 percent.

Each of these sources has weaknesses. The Realtors report the median price, which can change if a different mix of homes is sold. Case-Shiller mainly has data from large cities and uses county records that include foreclosure sales. The FHFA indexes exclude cash sales and non-conforming mortgages, and report older data.

If we want to know how much the value of the average home has changed, I think the FHFA purchase and refinance index is the best bet right now, because it includes a smaller percent of foreclosure sales, which have very little to do with the average home. The Realtors report that 25 percent of home sales in the first quarter involved foreclosures.

 During normal times, the four indexes line up pretty well, but these are not normal times. 

Understanding Real Estate - Art or Science?

Written By:

Ingo Winzer, President

Local Market Monitor

It's not science, although the vast amounts of calculation and statistics make it seem that it should be. Wall Street is brimming with math PhDs and how well did that work out?

 A science gives the same boring answer every time. Water always boils at 212 degrees F, and it doesn't matter if it's today or tomorrow.

 If the value of properties or mortgages could be calculated scientifically, there would never be any buying or selling because everybody would arrive at the same correct answer.

 It's precisely because real estate analysis is not a science that large amounts of money exchange hands. Opinions differ about current and future values, and we have recently seen how large the differences can be, trillions of dollars worth.

 To avoid the next debacle - or to capitalize on todays opportunities - don't look for evermore intricate calculations, look for some better art.

National Economic Outlook

Written By:

Ingo Winzer, President

Local Market Monitor

The economy continues to improve at the same moderate rate we've seen in recent months, with total jobs up 1.6 percent over last year. Jobs grew 0.7 percent in manufacturing, 1.7 percent in retail trade, 2.0 percent in health care, 3.1 percent at restaurants, and 3.4 percent in business services. The slow growth in manufacturing is a disappointment, but a reflection of the sorry state of the global economy, which currently doesn't need more airplanes or mining equipment.

 

Jobs in the government sector decreased 0.4 percent, 70,000 jobs at the federal level. This is small potatoes compared to the 2 million jobs gained overall, but the impact of lower government spending is much greater than the loss of government jobs. The gross domestic product, adjusted for inflation, grew at a 2.5 percent annual rate in the first quarter of this year, but would have grown at a 3.3 percent annual rate if government spending had just remained flat, never mind providing any stimulus. In the last quarter of 2012, lower government spending took 1.5 percent off GDP. If government continues a drag on the economy, we're looking at very modest grow in the next few years.