The majority of economists feel that the nation has turned the corner, according to a survey released by Bloomberg News. The U.S. Leading Economic Index rose 1% as of January 2014, a sign that indicates a lasting rebound. This latest report suggests steady growth this spring, but some uncertainties remain. Business caution and concern about unresolved Federal Budget battles persist, but the better-than-expected holiday season might point to sustained stronger demand and could put the U.S on a faster growth track for 2014.
The positive economic news of 2013 and the rising index of U.S. leading indicators signals that the world’s largest economy will keep expanding in the 1st half of the 2014. The increase in the New York-based Conference Board’s gauge of the outlook for three to six months matched the median forecast of economists surveyed. The measure climbed for the 13th time in the past 14 months.
Even with the positive economic news, we must bare in mind that we are recovering, not recovered. The US and the Texas region are not back to prerecession numbers in housing. Employment and economic growth are good, but many industries, such as construction (residential and non-residential) are not at prerecession numbers.
Rising consumer prices
A couple of weeks ago figures from the Labor Department showed that the Consumer Price Index rose 0.3% in December 2013. Over the last 12 months, the all items index increased 1.5 percent before seasonal adjustment. Advances (prices increasing) in energy and shelter indexes were major factors in the increase in the seasonally adjusted all items index.
This is lower than the 2.4 percent average annual increase over the last ten years. This is the first time the CPI has gone up less than 2.0 percent for consecutive years since 1997-98. This index shows that consumers and businesses don’t feel that we have fully recovered.
The Consumer Price Index (CPI) is a measure of the average change in prices over time of goods and services purchased by households. The CPIs are based on prices of food, clothing, shelter, fuels, transportation fares, charges for doctors’ and dentists’ services, drugs, and other goods and services that people buy for day-to-day living. Prices are collected each month in 87 urban areas across the country from about 4,000 housing units and approximately 26,000 retail establishments-department stores, supermarkets, hospitals, filling stations, and other types of stores and service establishments.
The economy is improving, but not recovered. The number of long-term unemployment is at a record high, and we need to address those needs. Small businesses are cautiously expanding, but slower than in the past. Since they make up over 85% of our national GDP, small business expansion is key to economic recovery.
National housing market
One of the most watched residential real estate indexes by the media is Case Shiller index. The Case-Shiller Index estimates that home prices increased by 11.2 percent in the third quarter of 2013 compared to the previous year. Home prices nationwide were 17 percent above the trough reached in the fourth quarter of 2011, but remained 23 percent below the peak reached in the first quarter of 2006. The analysis projects that price appreciation is expected to slow to 4.2 percent nationally through the third quarter of 2014 across all U.S. markets, close to its long-term annual average of 4.5 percent recorded since 1975.
By contrast, the best-performing Case-Shiller metro was Dallas/Fort Worth, TX, where the peak-to-trough decline was closer to 15%. Moreover, home prices in DFW are up about 5% compared to the last peak. Austin’s peak-to-trough is -12.6%, and peak-to-now is +7.7%.“Now” in this analysis is October 2013, the most recently reported Case-Shiller data. The data runs 90 days late on specific resale data. For a better description of Case Shiller and its validity to your local market, please visit the Independence Title blog.
In 2014, foreclosures regionally are not much of a market factor as the following numbers will bear out.
There were 1,361,795 U.S. foreclosed properties in 2013, down 26 percent from 2012 and down 53 percent from the peak of 2.9 million foreclosure filings in 2010. The 1.4 million total properties with foreclosure filings in 2013 was the lowest annual total since 2007, when there were 1.3 million properties with foreclosure filings. That is about 1% of all owned housing units in the nation.
States with the highest foreclosure rates in 2013 were Florida (3.01 percent of all housing units with a foreclosure filing), Nevada (2.16 percent), Illinois (1.89 percent), Maryland (1.57 percent), and Ohio (1.53 percent). In Texas it was 1 out of 2049 homes (.05% of all units). Foreclosures as a portion of this market are not an effective bargaining tool. Their lack of bulk versus the rest of the appreciating market is a not the market factor they were in previous years. In this strong market, not many properties will have a bargain price.
The supply of homes for sale in each Texas metro is at a record low. Houston has a 3.7 month supply, 29% less then this time last year. DFW has 3.0 month supply, also a 29% reduction in inventory from last year. San Antonio has a 4.1 month supply, a 9% decrease, and Austin a 2.3 month supply, 20% less than a year ago. That said, most markets had their best year in sales since the start of the recession. And demand for housing in the all Texas metro markets is the best it’s been in probably a decade.
All four major Texas metros have seen an increase not only in residential starts, but also an increase in office, commercial and industrial. This increase in business regionally is already pushing material and labor costs up.
All this leads to another challenging year for homebuyers. Inventory is the lowest I have seen in years. When buyers come out, they are going to see fewer options than last year and homes were selling here as fast as they came up for sale – sometimes for more than asking price. Buyers who came back to the market after sitting things out during the recession have to scramble to land a home. Real estate agents and economists expected that with the significant rise in home prices in Texas in 2013, more properties would go on the market to take advantage of the strong buyer demand.
That hasn’t happened, for many reasons. People like the idea of their equity increasing, but realize that should they sell, they are also going to be in the same crowded group of buyers if they are looking to re-buy in the same market. If they are planning to stay in the neighborhood they are going to be in for sticker shock.
Housing starts and new home sales
Home starts are doing better, but are still at about 50 to 60% of prerecession numbers. A total of 5,823 building permits for single-family homes were issued in December 2013, 13.9 percent more than in December 2012. In the 12 months ending in December 2013, a total of 86,561 permits were issued, 15 percent more than in the previous year.
There were 6,676 multi-family building permits issued in December 2013, 19.3 percent more than in December 2012. During the 12 months ending in December 2013, a total of 56,338 permits were issued, 4 percent more than in the previous year.
After a multi-year bottom of sorts, indicators are up, but the long-term trend is clearly down from previous highs. The good news is that homebuilders, developers, and lenders are much more confident about their prospects with the demand currently outstripping inventory in most of Texas.
Lastly, and perhaps the biggest positive of all is the improving employment picture over the last year. More than 8 million jobs were lost since December of 2007 through 2010 when the recession began to show signs of improving. The unemployment rate in the US (6.7%), Texas (6.0%), and Austin (4.5%) are all well over 3+ points better than at the bottom of the recession. One of the frightening statistics is that 40% of the unemployed have been without a job for more than 6 months, more than any other time since 1946. As this trend has been watched over the last few years it means, essentially, should you lose your job, there is a nearly 50% chance that you will be without a job for at least half a year. For those that have been long term unemployed, it is a challenge to say the least.
Long term unemployment is a real threat to housing market activity subdued. How many people will look to buy homes if they are afraid of the job market?
The sum of the parts
Recent trends in pricing, foreclosures, and inventory nationally seem to support the case for a continued improvement in housing and most real estate, as does the long-term trend in housing starts. All of this leads most to believe that the last year was one of hope and expectation for the housing market and a slow recovery, particularly regionally.
Most economists say the US economy is in a broad based recovery. Let’s look at the positives.
• Low interest rates: Even with the Treasury scheduled to slowing purchasing Fannie Mae and Freddie Mac mortgage-backed securities this year, mortgage rates are expected to remain in the 5% to 6% range through 2014.
• Rising home values: We expect to see price improvements , at least through 2015 nationally, regionally as well as locally. As stated previously, the largest concern is lack of inventory in all channels and how soon inventory can meet demand.
• Strong home affordability: Thanks to historically low interest rates and stable appreciation home prices.
Sincerely, every morning I try to find things to undermine my optimism and enthusiasm about our local and regional economic growth and strength, and it’s getting harder and harder.