Is the economy off life support?

Realtors don't buy the recovery, yet

The U.S. economy was a bit shaky at the start of the year. We are now just past the halfway point, so let’s take a look at what has progressed.

Since the end of the recession we have seen the U.S. economy grow at a slow and steady pace. The first quarter of 2014 was a bit of a shocker as the GDP declined 2.1%. Most economists blamed the decline on the harsh winter months that impacted both consumers and businesses. Since that time, we have seen signs of solid growth, reflecting a healthier economy. The first estimate of the second quarter GDP indicates the economy grew at a 4% pace. This gain has been led by consumer spending as confidence is up on both current and future conditions. Business investments are also higher. The Western and Southern regions of the country posted the strongest economic gains, year-to-date.

While 2013 was almost a mirror image of 2012 in terms of employment growth, as 2.3 million and 2.2 million jobs were created, respectively. During the first half of 2014, 1.4 million workers were added to the payrolls, or 233,000 per month. This is an improvement from the 203,500 monthly averages for 2013.  In addition, we have seen the unemployment rate fall from 7.5% at the beginning of the year to 6.1% in June.  Over the last 12 months, the number of unemployed individuals declined by 2.3 million. Over half of the jobs created in 2014 were in the various service industries. Even though the economy has recovered all of the jobs lost during the recession, a recent report states that the average annual wage of jobs lost in 2008-2009 was 23% higher than the average wage of job gains through the second quarter of 2014.

The housing market is improving; however, the gains remain limited. This segment of the economy is still impacted by a limited supply of units, tight credit conditions, existing homeowners with too little equity and potential first-time homebuyers burdened by student loan debt. The rate of household formation remains low, impacting housing starts. Existing home sales are up slightly from the 2013 total, while home price appreciation is more moderate. This, along with low mortgage interest rates, should help in keeping homes more affordable and attractive to first-time homebuyers.

Most forecasts for GDP and employment are very encouraging with stronger gains as the year progresses. With job growth, and hopefully incomes, on the rise, consumer confidence should trend higher, which should bode well for the housing market. And, a healthy housing market should support further economic gains.

Concerns about federal regulations burdening the process, the drop in demand for middle and lower-cost homes, and rising affordability problems headlined their concerns.

Realtors reported some uptick in inventory in some areas, but generally, supply remained tight relative to demand in many areas, especially for “lower” and “middle-priced” homes, according to the July survey conducted by the National Association of Realtors.

Distressed sales continued to account for a smaller share of the market.

Realtors continued to report about the restrictive effects of the current credit conditions, especially in relation to the credit score and down payment requirements that will qualify buyers for a mortgage.

The home buying process was reported to be “long and difficult” even for “quality borrowers.”

Although the home price recovery has encouraged more listings, the strong price growth amid modest wage income gains has also made homes less affordable, creating a demand for lower-priced homes that are, unfortunately, in short supply.

Changes in the Federal Housing Administration mortgage insurance premium regulations, the cost of obtaining flood insurance, and increases in property taxes were also reported to be having a negative impact on potential sales.

FHA financing regulations continued to be reported as severely impeding condominium sales.

Confidence about current market conditions declined across all markets in July 2014 compared to June 2014.

In the single-family market, the Realtors Confidence Index – Current Conditions for single-family homes dipped to 60 (62 in June), indicating that a smaller percentage of Realtor respondents viewed the market as “strong” compared to a month ago.

Overall it’s not pretty.

Confidence about the outlook for the next six months similarly declined in July compared to June. The six-month Outlook Index for single-family homes fell to 60 (63 in June); the index for townhouses edged down to 45 (46 in June); and the index for condominiums dropped to 40 (41 in June).

Tight inventory, difficulties in obtaining mortgages, and weak job growth were the main concerns reported by Realtors.

In some areas, the uncertainty about flood insurance rates, and the increase in property taxes were also cited as adversely affecting sales. FHA condominium accreditation/financing regulations continued to adversely impact condominium sales.

The Buyer Traffic Index declined in July to 55 (58 in June). Meanwhile, although inventory is improving, supply is still broadly tight: the Seller Traffic Index is still below 50 and essentially stayed flat at 45(44 in June) 3.

An index above 50 indicates that more than half of Realtors view traffic conditions as “strong.”

Realtors reported some uptick in inventory, but supply remained tight relative to demand in many areas, especially for “lower” and “middlepriced” homes.

There were reports that some potential sellers are hesitant to sell because of concerns that they will not find an affordable replacement home with adequate mortgage financing in a tight market. 

Most Popular Articles

3d rendering of a row of luxury townhouses along a street

Log In

Forgot Password?

Don't have an account? Please