February 6, 2013
The Numbers Don't Lie
This week the markets were focused upon the all important employment report. While the number can be volatile from month-to-month, the dip in first time unemployment claims during the previous two weeks made the markets more optimistic regarding January's numbers. They came in at a lackluster 157,000 jobs created for the month with an unemployment rate of 7.9%. These numbers were worse than expectations; however, a revision of previous data added over 300,000 new jobs to the data previously released in 2012. The numbers don't lie. There have been additional reports released recently that show the economy is growing more quickly. For example, the December orders for durable goods were much higher than expected. Preliminary numbers indicated that the growth of the economy stalled in the fourth quarter, but this pause was attributed to temporary factors such as the weather according to commentary by the Federal Reserve released after the Fed meeting ended on Wednesday.
As we have pointed out in the past, a growing economy is great news. But it also means that we can expect higher prices to join the party. It is not a coincidence that home prices rose last year. More recently, oil prices are up around ten percent and interest rates have begun creeping up as well. All along we have warned that the Federal Reserve Board has no power to keep rates low in a stronger economy. Nor would they want to. There was more drama regarding the Fed meeting this week for this very reason and rates eased a bit when the Fed indicated they are continuing their support for low rates. Meanwhile, it is expected that those who have been on the sidelines may very well recognize that this is their last chance to purchase a home which is on sale. Rates and home prices are up slightly, but they are currently still a bargain. If the numbers keep rolling in like they have, this fact may no longer be the case.
The bursting of the housing bubble plunged the economy into a recession from which it has yet to fully recover. But economists say this could finally be the year that housing lifts us out of the doldrums. Just over half of economists surveyed by CNNMoney identified a housing recovery as the primary driver of economic growth this year. The rest were split fairly evenly between consumer spending, increased domestic energy production and stimulus from the Federal Reserve as major growth drivers. "Homebuilding activity will likely remain the strongest growing component of the economy in 2013," said Keith Hembre, chief economist of Nuveen Asset Management. "After several years of excess supply, demand and supply conditions are now in much better balance." Home sales rebounded to the strongest level in five years in 2012, as home building bounced back to levels not seen since early in the recession. Near record low rates, rising home prices and a drop in foreclosures have combined to bring buyers back to the market. The economists surveyed also forecast that there will be just under 1 million housing starts this year -- roughly matching the 28% rise in home building in 2012. Moody's Analytics is forecasting much stronger growth -- a 50% rise both this year and next year, which it estimates will create more than 1 million new jobs. "There's a lot of pent-up demand for housing, and very little supply," said Celia Chen, housing economist for Moody's Analytics. "As demand continues to improve, home builders have nothing to sell. They'll have to build." She said that growth in building will mean adding not just construction jobs, but also manufacturing jobs building the appliances and furniture needed in the new homes, which in turn drives overall consumption higher. And economists say the tight supply and renewed demand for housing should lead to higher home values -- about a 3.7% increase according to the survey. "One of the most significant indirect effects from the housing recovery is the 'wealth effect' on consumers due to the recovery in home prices," said Joseph LaVorgna, chief U.S. economist of Deutsche Bank, who said better home values can affect both consumer psychology on spending as well as their actual finances. "Even small moves in home prices can have large effects on consumption, because housing comprises such a significant share of household assets," he said. Source: CNN/Money
Remodeling sentiment rose to the highest level in five years, according to the National Association of Home Builders’ (NAHB) Remodeling Market Index (RMI) for the fourth quarter of 2011. The RMI increased to 46.6 in the fourth quarter from 41.7 in the third quarter. In the fourth quarter, the RMI component measuring current market conditions rose to 48.4 from 43.0 in the previous quarter. The RMI component measuring future indicators of remodeling business was also positive, increasing to 44.8 from 40.4 in the previous quarter. An RMI below 50 indicates that more remodelers report market activity is lower (compared to the prior quarter) than report it is higher. The overall RMI averages ratings of current remodeling activity with indicators of future activity. “As more consumers remain in their homes rather than move in this economy, remodelers benefited from a gradual increase in home improvement activity, taking us to a five-year high,” said NAHB Remodelers Chairman Bob Peterson, CGR, CAPS, CGP, a remodeler from Ft. Collins, Colo. “2011 ended on a strong note for the remodeling industry.” Current market conditions improved significantly in all four regions over the third quarter of 2011. The RMI reported higher market activity in two important categories: major additions 52.3 (from 45.2) and minor additions 50.1 (from 45.7). Future market indicators in each region also experienced gains from the previous quarter. Two of the indices reported a level over 50: calls for bids at 50.7 (from 45.4) and appointments for proposals at 50.1 (from 43.3), while work committed for the next three months only rose to 31.5 (from 29.9). “With several key components above 50, the latest RMI provides reason for guarded optimism going forward,” said NAHB Chief Economist David Crowe. “The residential remodeling market has been improving gradually, mirroring the trend in other segments of the housing market. We expect a modest growth in remodeling activity to continue throughout 2013.” Source: NAHB
Rents were up for the third consecutive year in 2012 and are forecasted to rise again this year, according to MPF Research. Apartment rents increased 3 percent in 2012, a slower pace than in 2011 where rents rose 4.8 percent. The historical norm for the past two decades in rental increases is 2.5 percent per year. According to MPF, many property owners weren’t as aggressive in asking for higher rents in 2012 as they were in recent years. "Many on the operations side of the apartment industry have focused on sustaining their very tight occupancy levels during a period when job growth and new household formation have been fairly sluggish at the same time that renter movement has begun to inch up from the unusually low levels experienced in the previous few years," says Greg Willet, MPF Research vice president. Source: Realty Times
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