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Opinion, commentary and analysis on everything that makes the U.S. housing economy tick -- not to mention the ghosts in the machine, too. Written by HW's team of editors and reporters each business day.
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Uh-oh, the first quarter saw economic decline, not growth

Do you know about the shrinkage?

May 13, 2014

Looks like HousingWire – and the Commerce Department – counted the chickens before they hatched.

It’s a contraction, not the 0.1% economic growth in the first three months of the year as first reported.

The news of this shrinkage comes after the government revised downward some key figures from the first quarter.

In late April, the Commerce Department said U.S. economic output grew at a seasonally adjusted annual rate of 0.1% in the first quarter.

But the newly revised figures such as the March trade data released last week, and revised data on retail sales and business inventories, show that the gross domestic product contracted for the first time in three years.

JPMorgan Chase (JPM) analysts peg the contraction at a 0.8% decline, while Barclays put the decline at 0.6%. Macroeconomic Advisers reported 0.7% to the Wall Street Journal.

So despite the trumped-up jobs report, which pushed the good news of a decline in the unemployment rate — even though that decline is driven entirely by people dropping out of the workforce — there aren’t signs things are picking up in the economy.

It's just more shrinkage.

What does that mean for housing?

For the first time in this nation’s history there has now been a six-year continuous period where the nation added more renting households than owned households.

It’s a big reason why homebuilders aren’t building new homes like they used to and why so many still see gold in single-family rentals as an operation and as an asset class, even if investor activity is expected to slow from its 2013 highs.

The rise in home prices — driven by limited inventory and investor sales — may help those underwater, or those trying to reestablish some of the equity they lost in the crash, but it presents another problem: affordability. 

Home affordability continues to be a challenge for Americans dealing with unemployment, underemployment, income stagnation, student debt and recovering credit scores that don’t meet QM standards. Housing affordability affects first-time homebuyers more significantly than existing homeowners, with rising rates and increasing prices causing a greater decline in affordability for those just entering homeownership.

Without a real economic recovery — we still haven’t really seen one — the key ingredients for a housing recovery aren’t there.

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