Economist's Outlook

The Latest on Mortgage Applications

In each Economic Update, the Research staff analyzes recently released economic indicators and addresses what these indicators mean for REALTORS® and their clients. Today’s update discusses mortgage purchase applications.

  • Demand for mortgages to buy a home declined modestly from the prior week, though it is up 6 percent from a year ago.  Viewed from a longer-term perspective, mortgage applications for home purchases are still scratching along the bottom after the gigantic tumble from the bubble years.
  • All-cash purchases, meanwhile, have shot up dramatically in the past 3 years, now accounting for about one-third of all home sales.  It is the cash that is helping the housing market rebound.
  • Refinance activity looks extremely difficult in a rising interest rate environment.  There was a slight increase in the past week, but it is down 55 percent from one year ago.  Refinance activity could easily fall to a 15-year low in 2014.
  • Throughout last year and the early part of this year, the 30-year fixed rate had averaged just 3.5 percent.  Mortgages rates now look to rise to 5 percent by the year’s end or by the spring of next year.  Then these unimaginable low rates are gone for good.  One just may be able to catch slightly lower rates some weeks when economic news turns surprisingly bad, but more likely than not one should expect to pay a higher rate in the upcoming months.

Commercial Fundamentals Point to Steady Growth In Second Half of 2013

After gross domestic product revisions, business spending shows growing confidence in the first half of the year. The first quarter spending was down 4.6 percent, with a decline driven by a 25.7 percent drop in spending on commercial structures. However, the second quarter posted a much better performance, with an annual growth rate of 4.6 percent. Spending on commercial buildings rose 6.8 percent. Businesses also increased their spending on information processing and transportation equipment by 11.4 percent and 5.5 percent, respectively. The new component of business spending—intellectual property products—rose 3.9 percent in the second quarter, boosted by software and R&D.

Despite slowing global economies, international trade remained brisk. Exports rose 5.4 percent in the second quarter, after a 1.3 percent decline in the first quarter. Imports increased 9.5 percent in the second quarter, leading to a widening balance of trade.

The looming costs and uncertainty of the coming Patient Protection and Affordable Care Act are certainly keeping businesses cautious. The uncertainty is illustrated in the employment numbers. Payroll employment in the second quarter gained 563,000 jobs, a lower figure than the first quarter’s 622,000. July’s employment figure of 162,000 disappointed expectations and indicated a slowdown in hiring during the first month of the third quarter. On the flip side, employment remained positive and the economy is making progress toward closing the post-recession gap. The unemployment rate declined from 7.7 percent in the first quarter to 7.6 percent in the second, and then to 7.4 in July. However, part of the decline is attributable to a lowering of the labor force participation rate.

The outlook for the remainder of 2013 is for GDP to grow at a 1.6 percent annual rate. Payroll employment is expected to rise 1.5 percent, leading to a net 2.4 million new jobs for the year.

With a steady economy, commercial fundamentals show moderate growth in the third quarter. Vacancy rates continue tightening, accompanied by rising rents. National vacancy rates over the coming year are expected to continue declining.

Net absorption of office space is projected to total 30.0 million square feet by year end. Office vacancies are expected to decline to 15.6 percent by the end of 2013. The markets with the lowest forecasted office vacancy rates are Washington, D.C., New York and Little Rock, with availability rates of 9.7 percent, 9.8 percent and 12.1 percent, respectively. Rents for office properties are expected to increase 2.5 percent over the year.

Industrial markets are still finding favorable demand for warehouse space. Net absorption of industrial space is projected to total 102.0 million square feet by the end of 2013, driving vacancy rates to 9.2 percent. The metro areas with the lowest industrial vacancy rates are Orange County, at 3.8 percent, followed by Los Angeles with 4.0 percent, and Miami, at 5.9 percent. Rents for industrial buildings are expected to grow 2.4 percent this year.

Consumers remained steadfast in first half 2013 spending, boosting demand for retail spaces. Net absorption of retail buildings is expected to total 11.8 million square feet this year. With the supply of new buildings still constrained, vacancies are expected to drop to 10.4 by year-end. Markets with the lowest retail vacancy rates are led by San Francisco, at 3.9 percent. Rounding the top three are Fairfield County, CT, at 4.1 percent, and Long Island, NY, at 5.0 percent. Rent for retail properties are projected to increase 1.5 percent over the year.

The apartment market maintained a strong demand and low vacancies. However, competition from residential rentals and new supply is adding pressures on vacancies. Net absorption is expected to total 266,650 units this year. Against a supply of only 141,200 new units, vacancy rates are estimated to reach 3.9 percent by the end of 2013. Metro areas with the lowest vacancy rates are New Haven, CT, at 1.9 percent and Syracuse, NY, at 2.0 percent. Sharing the number three spot, New York City and San Diego, each record 2.1 percent. Apartment rents are projected to increase 4.0 percent in 2013.

For the full Commercial Real Estate Outlook report, visit

“Accidental Landlords” Seeking to Sell Rental Property

In recent years, some underwater owners have opted to rent their property to avoid the loss of equity and/or impact on credit of a short-sale. With prices rising, these “accidental landlords” are now in a better position to sell their rental properties. Although construction of new homes will make the biggest dent on easing the inventory crunch, the sale of these properties can help to bring additional properties to the market. Based on information presented in the July RCI survey, 21 percent of REALTORS® reporting working with an “accidental landlord” to sell their rental property.
[Source: July REALTORS® Confidence Index]

The Latest on Construction Spending

In each Economic Update, the Research staff analyzes recently released economic indicators and addresses what these indicators mean for REALTORS® and their clients. Today’s update discusses  construction spending.

  • Construction spending fell in June due to cuts in government building projects and from less new construction of commercial real estate buildings.  Residential construction activity held on over the month and is now higher by 17.6 percent from one year ago.
  • Residential construction has been making a steady comeback since 2009 when the home buyer tax credit began to revive the housing market.  From the low point, the value of new home construction is up 43 percent.  But due to the severe fall during the housing crash, the current construction activity is only about half the level of bubble construction activity.  It is a good thing that the construction is recovering and far away from a bubble.
  • Commercial real estate construction has not yet made any meaningful comeback.  Low new construction combined with some rises in new leasing will mean falling vacancy rates over time.  Rents will get steadily bumped up as a result.
  • As part of sequestration on government spending, there are fewer government funded construction projects.  This trend could continue for few more years.
  • Because of less than robust recovery in new construction, there are still 2 million construction workers today compared to the peak boom year.
  • Today’s New York Times discusses potential outlook for Detroit.  Can it make a comeback after the bankruptcy?   It will depend on many things.  If there is a genuine sustained revival at some point then construction jobs will abound in Detroit.  A case of Washington D.C. going from the ‘murder capital’ of the country in the 1990s to a thriving walkable city of today is a good example of a turnaround.  Pittsburgh is another example as the city shed away from its steel industry to create jobs in other sectors.  Even going back centuries to the classical times, Rome after the great fire destroyed much of the city and its square-shaped Greek style buildings, Roman citizens started anew by reconstructing buildings into a new Roman style with curves, including its venerated Coliseum.  Let’s hope Detroit can make the right decisions to make a good comeback.  A link to New York Times story is here  for those interested:

Happy Labor Day Weekend: Info from the 2013 Member Profile

  • Happy Labor Day to our members, who are long overdue for a break! According to the latest Member Profile, the median number of hours worked by a NAR member is 40 hours a week (meaning half work MORE than 40 hours a week), with managers and appraisers often working even longer hours—a median of 50 hours a week.
  • 77 percent of our members say real estate is their only occupation, while 22 percent work a second job on top of being a REALTOR®.
  • Additionally, many of our members have children at home, with the typical household being three people for those who are under 50 years old.
  • I hope all our members enjoy the long weekend and try not work too hard!
  • For more information on the Member Profile, visit this landing page:

Latest Metro Employment Conditions

  • Among large metro markets, Salt Lake City has zoomed ahead in terms of job creation with a 4.2 percent gain from one year ago. Increasingly, more cities are now topping a three percent job growth rate as the economy continues to expand. The following markets can therefore expect continued rises in home sales and increases in commercial leasing activity.

  • Among small towns, the following markets have a very fast five percent or better job growth rate.

  • Utah’s economy is highlighted in this week’s The Economist. What the article sadly did not mention is that Governor Gary Herbert was a former president of the Utah Association of REALTORS®. Electing a person who understands the real world and the importance of real estate to the economy is paying off in Utah. RPAC (REALTOR Political Action Committee) is also making a difference in winning elections.
  • The Economist notes that student performance at schools throughout the state is also well above average despite spending very little money for public schools. Several Utah REALTORS® have told me that they simply turn-off TV at home so their kids can study. Now that’s a cheap way to boost educational performance.
  • Here’s a link to the article:

Rising Rents for Residential Properties

Demand for rental units appears to remain strong based on rental price trends according to information from the July REALTORS® Confidence Index. Approximately 54 percent of REALTORS® conducting rentals reported higher residential rents compared to 12 months ago.  About 22 percent of  REALTORS® reported conducting an apartment rental.

What Does This Mean for REALTORS®? Depending on the property there may be significant financial advantages to buying rather than renting—particularly in the long run.  In addition, there are major social benefits associated with home ownership with major, favorable impacts on families:  Social Benefits of Homeownership and Stable Housing.

The Latest on GDP

In each Economic Update, the Research staff analyzes recently released economic indicators and addresses what these indicators mean for REALTORS® and their clients. Today’s update discusses GDP.

  • The economy continues to expand, albeit at a slow rate.  The second quarter GDP – the value of everything America produced – increased 2.5 percent.  That growth is sufficient to create 2 to 2.5 million net new jobs this year.  More jobs are clearly good for the real estate market, particularly now to help mitigate the negative impact of rising mortgage rates.
  • Ideally, several consecutive quarters of above 3 percent growth is needed to say that the economy is truly gearing up for better times ahead.  It has been seven consecutive years of sub-par economic performance to date.
  • Housing was a big contributor to the economy in the latest data.  Residential construction expanded by a healthy 13 percent.  Moreover,  key consumer spending rose by 1.8 percent.  Since wage growth has been minimal, the increased consumer activity is likely due to the rise in housing wealth.  When people feel wealthier, they spend more.  Let’s hope the policymakers do not screw up the recovery by making mortgages even more difficult to obtain or by chipping away at mortgage interest deduction, as is being discussed in Washington.
  • Business spending activity remains subdued with only 2.9 percent gain.  Generally, this component should be rising at a double-digit pace after a recession.  Companies are evidently still very hesitant to spend even after having rebuilt up their cash flow situation.  A sharp increase in business spending will lead to much better economic times ahead.
  • GDP is the best measure of strength of a country and of future living standards.  America today is the undisputed leader in the world.  Countries that have been pro-America like Colombia, South Korea, and Czech Republic tend to do well economically over time.  In countries that take anti-American stance like Venezuela, North Korea, and Belarus, people suffer economically. Being pro-America does not mean a love of everything America has done in the past.  Rather being pro-America means the country’s belief in the rights to life, liberty, and the pursuit of happiness of all its citizens – the factors that make a country grow rich and what Martin Luther King rightly promoted.  Simply, to paraphrase Winston Churchill’s remark about democracy being the worst form of government, we may say that America has been the worst possible country except for all others.

Commercial Investments Rise 24% in First Half of 2013

As the traditional summer vacation season wrapped up, it became easier to focus on the economic performance over the first half of the year. However, the task became an exercise in reading fortune cookies given the many changes in the economy, the markets, and the legislative environment.

The main measure of economic activity—gross domestic product—has been redefined and revised by the Bureau of Economic Analysis during the second quarter. It has been redefined to include business investments in intellectual property, such as research & development, software, and entertainment and original artistic work. GDP has also been revised, as it normally is at regular intervals.

The results point to an economy that nominally is much stronger than it was a quarter ago, by almost $2.0 trillion. At the same time, the revised annual rate of growth for first quarter GDP dropped from 2.7 to 1.2 percent.  However, the estimate for the second quarter growth rate is 1.7 percent, indicating an accelerating economy.  Of course, given the pace of acceleration, we should not expect any whiplash, as there is no hurry in the macro advance.

Sales of major properties (over $2M) advanced 24 percent on a yearly basis during the first half of this year, totaling $145.3 billion, based on Real Capital Analytics (RCA) data.  Most property types registered double-digit growth rates, signaling strong investor interest in commercial assets.   Based on National Association of REALTORS® data, sales of properties at the lower end of the price range (mostly below $2 million) increased 12 percent on a yearly basis.

Portfolio sales made up a significant part of transactions in the first half of the year, with Archstone’s sale of apartment properties accounting for over $14 billion of the total.  Hotels were another major component of the top portfolio transactions.  On the individual property side, the General Motors building in New York ranked at the top, selling for $1.3 billion, at $1,766 per square foot.  Office properties made up the top three, with Sony Plaza and 425 Lexington Avenue, both in New York, coming in second and third place.

In line with growing demand for properties, prices rose 8 percent on a yearly basis, according to RCA’s Commercial Property Price Index.  Prices rose the most for apartments (15%) and retail buildings (13%). The average apartment unit price reached $108.347.  Retail spaces commanded $166 per square foot.  Office buildings traded for an average of $212 per square foot, up 7 percent year-over-year.  Industrial properties posted average prices of $63 per square foot, a 5 percent decline from a year ago. Cap rates inched up 17 basis points, to an average 7 percent nationally across all property types. For lower priced properties (below $2M), prices increased 2 percent year-over-year, based on survey data from the National Association of REALTORS®.

Investor interest in secondary and tertiary markets continued in the first half of the year.  Markets like Jacksonville, Long Island, Philadelphia, Las Vegas posted triple-digit growth rates in sales volume. By the year’s midpoint, 31 markets exceeded the $1 billion mark.  In terms of dollar volume, Manhattan, Los Angeles and DC’s Northern Virginia suburbs rank at the top of the list.  However, Dallas and Houston move in the top five, surpassing Atlanta, Chicago and Boston.

Distressed properties accounted for $118 billion across all property types, with office making up $36.5 billion of the total.  The workout rates have been steadily climbing, reaching 66 percent in the first half of the year.  Apartments and hotels recorded the highest workout rates, at 68 percent and 67percent, respectively.

New commercial distress is on a downward trend, as asset values continue to rise.  CMBS continues to hold the largest proportion of outstanding distress—45 percent.  U.S. banks are the second largest holder of distressed properties, accounting for 25 percent.

Several markets stand out for their rates of distress workouts.  Las Vegas retains the top spot in terms of total current outstanding distress—$11.4 billion.  Its workout rate is 43 percent, a fairly low figure.  Manhattan posted the second highest current outstanding distress volume, totaling $8.4 billion. However, its workout rate reached 77 percent in the first half of the year.  Other markets with high distress workout rates were DC (82), San Francisco (87%), Pittsburgh (79%) and San Jose (76%).

For the full Commercial Real Estate Outlook report, visit

The Latest on Case Shiller and Home Prices

In each Economic Update, the Research staff analyzes recently released economic indicators and addresses what these indicators mean for REALTORS® and their clients. Today’s update discusses the Case Shiller home price index and consumer confidence.

  • Case Shiller data showed that its measure of prices moved in the same manner that other price measures have moved recently—up sharply.  Case Shiller data showed an increase of 12.1 percent over June 2012 for its 20-city index and 11.9 percent for the 10-city index.  This was the 4th consecutive month of year-over-year gains in both indexes.
  • With this release, Case Shiller also published quarterly national data based on a broader range of areas which showed a gain of 10.1 percent over the 2nd quarter of 2012.
  • This data is in line with information released previously by NAR and others showing substantial gains in home prices (pictured above).  NAR reported a 13.4 percent increase in the median price from June 2012 to June 2013, and CoreLogic reported an 11.9 percent gain while FHFA reported a 7.7 percent increase during the same period.
  • NAR reports the median price of all homes that have sold while Case Shiller, CoreLogic, and FHFA report the results of a weighted repeat-sales index.  Because home sales among higher priced properties have been growing more than among lower price tiers, the NAR median price has risen by more than the weighted repeat sales index—which computes price change based on repeat sales of the same property.
  • Case Shiller data is based on a 3 month moving average, so reported June prices include information from repeat transactions closed in April, May, and June.  For this reason, the changes in the NAR median price tend to lead Case Shiller.  NAR data showed continued growth in July, so expect repeat prices to follow suit.
  • By market in the 20 cities covered by Case Shiller, metros in the West lead the pack, a trend seen in other measures.  Las Vegas posted the biggest year over year increase with a gain of 24.9 percent followed closely by San Francisco at 24.5 percent.  The slowest growing metro in the last year according to Case Shiller was New York where home prices increased only 3.3 percent.  Still, all 20 metros showed year-over-year gains, and 12 of these were double-digit gains.
  • Separately, the Conference Board registered a slight increase in preliminary Consumer Confidence in August.  The index is up to 81.5 from 81.0 in July.  While the index for the present situation declined, the expectations index increased.

Homeownership Rates: Top and Bottom 5 States

Affordability has a strong impact on homeownership.  Not surprisingly, four of five states with the lowest homeownership rates in the US are characterized by markets with high prices.  Washington, DC has the lowest homeownership rate at 45.3%.   At the opposite end of the spectrum, West Virginia, New Hampshire, Michigan, and Maine have among the highest affordability and homeownership rates.  The dispersion of state homeownership rates is a wide 22.4 percentage points around the US average of 65%, split symmetrically at 11.2 points on either side, with the exception of DC.  More information about state homeownership rates is available in the Local Market Reports for the 2nd quarter of 2013.

Buyer and Seller Characteristics: Cash Sales

Based on information from the July REALTORS® Confidence Index survey (PDF), cash sales were 29 percent of Residential Sales in July.  Investors and International buyers are most likely to pay cash, while First-Time Buyers are most dependent on mortgages.

Other  Market Characteristics
  • First Time Buyers:  29 Percent of Residential Buyers.
  • Residential Sales to Investors:  16 Percent of Residential Market.
  • Second Home Buyers : 11 Percent of Residential Market.
  • Relocation Buyers : 17 Percent of Residential Market.
  • International Transactions: About 2.2 Percent of Residential Market.

Latest New Home Sales

In each Economic Update, the Research staff analyzes recently released economic indicators and addresses what these indicators mean for REALTORS® and their clients. Today’s update discusses new home sales.

  • New home sales fell sizably in July. The latest figure of 394,000 (annualized sales rate) is 13 percent below the prior month’s level, though still up from one year ago.
  • New home sales measure contract signings and not closings. By contrast, existing home sales released earlier in the week, which had spiked upward to the highest level in 4 years, measures closings. The fact that contract signing is coming down on new home sales likely reflects higher mortgage rates. Another factor is the still very sluggish level of new home construction. Simple math of low new home construction means fewer new home sales. This is reflected in essentially 50-year low inventory levels, as even falling new home sales is not leading to any measurable gains in unsold inventory.
  • Meanwhile, the median price of a new home rose by 8.3 percent from one year ago. Tight inventory and higher construction costs are pushing up prices. The gap between new home price and existing home price is still abnormally high. Therefore, there is still further room for existing home prices to catch up.
  • The prospect for new home sales is still up, despite the latest month’s tumble. The reasoning is simple. There is a broad housing shortage. Only homebuilders can genuinely relieve the inventory conditions. Whatever builders are building are selling, despite again the one month hiccup. Therefore housing starts will rise over the next two years for sure. More new home construction, then naturally, more new home sales. The only bottleneck at the moment is the difficulty of obtaining construction loans.

REALTOR® Confidence Still High, But a July Dip

REALTOR® confidence about the outlook for real estate markets over the next six months fell across the single-family, townhouse, and condominium markets in July. A confluence of factors tempered REALTOR® optimism: higher mortgage rates, rapid price gains amid a slow economic recovery, lack of inventory in many areas, and stringent credit conditions. REALTORS® ascribed the low volume of condominium sales to lack of FHA financing, with many condominiums not being FHA-approved. The Indexes for buyer and seller traffic also declined in July, additional indicators of market deceleration.

What Does This Mean for REALTORS®? The decline in REALTOR® confidence is probably temporary as the market adjusts to interest rates, a lack of inventory, and a leveling off of prices. The economy continues its slow but positive expansion along with the creation of additional jobs (a major driver of housing demand). Recent concerns about an over-heated housing recovery or, alternatively, a housing market slipping back into decline appear to be irrelevant based on available data.

Largest Improvements and Declines in Median Price

  • The strongest improvements in median sale prices over the four-quarter period ending in June of 2013 were dominated by markets from the Sun Belt and Atlanta. These markets experienced some of the largest price declines following the subprime bust and economic recessions which were followed with a subsequent spike in foreclosures.
  • While investors in lower-priced properties in these markets led the early increases in home purchases and price growth in 2011, steady price appreciation in these markets has helped to attract additional investors and first-time homebuyers into the fray, spreading the price appreciation and stability to other portions of the market.
  • Several of the markets that experienced price declines are in states with a judicial foreclosure which take additional time relative to non-judicial states and create uncertainty for lenders. This uncertainty has weighed on price recovery in judicial states.
  • Additional information on price dynamics is available in the Local Market Reports for the 2nd quarter of 2013.

The Latest on the FHFA Monthly House Price Index

In each Economic Update, the Research staff analyzes recently released economic indicators and addresses what these indicators mean for REALTORS® and their clients. Today’s second update discusses the latest numbers from the FHFA house price index.

  • FHFA released monthly and quarterly home price data today covering prices through the second quarter and June.  The purchase-only data, based solely on repeat prices from purchase transactions, showed a 2.1 percent rise in the second quarter from the first quarter, the eighth consecutive quarter of increasing prices.
  • Monthly data showed that prices were up 0.7 percent from May to June, the 17th month of consecutive increase, and up 7.7 percent from June 2012 to June 2013.  By comparison, NAR reported that the price of the median home sold increased 13.4 percent from June 2012 to June 2013 and showed that the gains continued in July.  FHFA data from July will be available next month.
  • In the quarterly release, FHFA has more localized data.  This month’s release showed that from a year ago, price gain was the fasted in Nevada, California, Arizona, Oregon, and the District of Columbia.  Four other states had double digit gains in home prices from one year ago.  All states showed gains.  Those states with the smallest price gains were Kentucky, New Jersey, Alaska, New York, and New Mexico.
  • FHFA also publishes metro area data.  For the year, Las Vegas and Stockton-Lodi, CA each had price gains of 26.6 percent as measured by the purchase-only index available for the 100 most populated MSAs.   Only two of the 100 most populated MSAs saw slight declines in prices from one-year ago; Syracuse, NY and Columbia, SC each saw declines of less than 1 percent.
  • For the year ending in June, the top twenty metro areas by home price appreciation out of the 401 covered as measured by purchases and refinance data were in 7 states: California, Arizona, Nevada, Oregon, North Dakota, Florida, and Idaho.  Stockton-Lodi, CA topped the list with a 19.4 percent gain in home prices from one year ago.  Phoenix and Las Vegas rounded out the top three. While there were no price declines at the state level, some metro areas did see slight declines.  The metro areas with the biggest decline in home prices in the last year was Norwich-New London, CT where prices slipped 3.36 percent.  Gulfport, MS and Rockford, IL rounded out the bottom 3.

Latest Leading Economic Indicators

In each Economic Update, the Research staff analyzes recently released economic indicators and addresses what these indicators mean for REALTORS® and their clients. Today’s update discusses the latest leading economic indicators.

  • The leading economic indicators are pointing to continued expansion in the economy. In July, the indicator index rose 0.6 percent and the pace of increases over recent months appears to be accelerating. This is good news for GDP growth and job growth prospects.
  • Though there was a slight pullback in consumer sentiment and weekly average work hours, the rise in new durable goods orders, housing permits, and the stock market (in July) more than made up for the broad index to point to better economic times ahead. Moreover, the spread between short-term and long-term interest rates are widening, which generally has been a better economic outlook. These measurements are reasonably consistent with NAR’s projection of 2 million net new jobs this year and a slightly higher number next year. More jobs are needed for higher home sales in a rising interest rate environment.
  • The leading economic indicators for China have been rising a bit faster, 1.4 percent in July. The Chinese economy will therefore likely move a bit faster than the U.S. economy.
  • Though the leading indicators are good for a short-term outlook of 12 to 18 months, they are clueless about the longer-term forecast.
  • China, for example, had been growing fast but will undoubtedly slow as copy-cat technological improvements dry out. Moreover, China faces a long-term problem that will be very hard to overcome. It is a culture of favoring sons over daughters. A highly distorted sex ratio at birth in the past decade will result in about 30 million more young men in their twenties than young women of the same age in a few years.  Are social unrest and fighting on the horizon in China?
  • The tragic story of Anne Boleyn is a good illustration of why you should not discount daughters. King Henry VIII fell madly in love with Anne while he was married to another woman. After a complicated separation of England from the Catholic Church, the King later lawfully married Anne. But when she couldn’t produce a male  heir, the King had Anne on the chopping block (and subsequently re-married four more times). Anne, however, did leave behind one important legacy: her daughter Elizabeth. The Virgin Queen, as Elizabeth eventually found a way to the throne, set the conditions for Britain to rule the waves over the next 300 years and oversaw an empire where the sun never set. Never underestimate a daughter’s potential for greatness.

Mortgage Rates

In each Economic Update, the Research staff analyzes recently released economic indicators and addresses what these indicators mean for REALTORS® and their clients. Today’s update discusses mortgage rates and affordability.

  • The average rate on 30-year mortgage looks to hit 4.7 percent very soon.
  • The 10-year Treasury has inched higher this week ahead of tomorrow’s release of minutes from the most recent meeting of the Federal Reserve Governors.  Light August trading volume and a dearth of economic data this week have added to the uncertainty.
  • Traders of Treasuries and mortgage backed securities are concerned about the timing of the Fed’s imminent winding down of its program to purchase these securities.  Most bets are for September, while a few are for the beginning of 2014.
  • The end of the Fed’s program would result in higher rates for home buyers.  But how will it impact home purchases?  The answer is it depends.
  • The US has experienced periods of rising rates before without a decline in home sales volumes both in mid and late 1970s as well as in 1994 and 1999 through 2000.  However, as rates spiked above 10% in the early 1980s, home sales fell to their lowest levels in nearly a decade.   The good news is that rates are not likely to rise to 17%.

  • Rising mortgage rates combined with higher home prices will erode affordability, which is at record lows.  However, affordability is still strong and will remain so with modestly higher rates or prices and there are many homebuyers who have not been able to participate in the market in recent years due to tight lending conditions.  Income growth does need to improve over the long-term though.

Latest State Employment Conditions

In each Economic Update, the Research staff analyzes recently released economic indicators and addresses what these indicators mean for REALTORS® and their clients. Today’s update discusses  state level employment.

  • Job growth has been the fastest in Utah, Arizona, and Georgia in the past 12 months to July, all expanding at double the national growth rate.  Utah has already recovered all the job losses that occurred during the recession and is charting new highs.  Arizona and Georgia still have further to go before surpassing their peaks.
  • Happy to see the very hard hit state of Michigan generating jobs, though it will not reach its prior peak anytime soon.
  • The states in the upper Great Plains had very low unemployment rates.  North Dakota in particular had the lowest unemployment rate in the country with only 3 percent of adults unable to find jobs.  Many years of steady job growth are contributing to such a low jobless rate.
  • The unemployment rate was the highest in Nevada and Illinois with more than 9 percent without jobs.  Georgia still has a high unemployment rate of 8.8 percent, but at least the Peach State is quickly adding jobs which will lower the unemployment rate in the upcoming months.  Nevada is adding some jobs.  Illinois, unfortunately, was the only state with a high unemployment rate and very low job creation.  Therefore, the high unemployment rate will stick around a while longer in Illinois.
  • The Chicago area, comprising more than two-third of Illinois jobs, was one of the fastest growing cities at the turn of the last century.  That is, around the year 1900, Chicago was the railroad center of the country and anyone with good business ideas happily moved to the city.  The Great Migration from the Deep South was also occurring as jobs with good wages were plentiful.  Many of the great buildings in Chicago are a testament to those fast growing times.  Today, Chicago is no longer the Second City despite having a great comedy theater by that name (LA took that spot).  Chicago could easily drop to fourth, behind Dallas-Ft. Worth by the next decade if job growth does not meaningfully pick up.

Latest Housing Starts Data

In each Economic Update, the Research staff analyzes recently released economic indicators and addresses what these indicators mean for REALTORS® and their clients. Today’s update discusses housing starts.

  • New home construction rose in July to 896,000 (annualized pace), up 6 percent over the month and showing a decent gain of 21 percent from a year ago. The monthly gain was in multifamily and not in single-family new units, though both property types are up from one year ago.
  • Even with the increase, housing starts are still well below the long-term average of 1.5 million new units each year. In other words, do not expect any notable relief to the housing inventory shortage any time soon. Another good 50 percent increase in new home construction is needed to help relieve the inventory shortage conditions.
  • The inventory of newly constructed homes is essentially at a 50-year low. Months’ supply – how many months it would take to exhaust the inventory at the current sales pace – is also bumping into low figures. Whatever the builders are constructing is getting sold. Yet, more building activity is not taking place.
  • Because of excessive government regulation arising from the Dodd-Frank financial regulatory law and the uncertainty related to international capital rules (Basel III), construction loans have been very difficult to come by. Many small-time local home builders, therefore, have all but thrown in the towel. But the big builders who can tap Wall Street funds like Toll Brothers and Lennar are smiling. Less competition from small home builders will no doubt lead to an environment of more tacit collusion among large builders. A case of the revenge of economic laws on American consumers because of excessive government regulation?
  • From consumers’ perspective, inventory will continue to remain tight in most of the country. Multiple bidding is not going away in those markets with acute shortages, even with rising mortgage rates.
  • At least new homes are built for durability in the U.S., providing the basis for wealth building for U.S. homeowners and their inheritors. In Japan, homes typically get demolished after 30 or 40 years with zero value at the end, other than the land value. Part of the reason is a culture of wanting to experience renewal. But it could also be due to the very high inheritance tax in Japan. Why leave something behind if the government is essentially going take a big chunk of your asset?