In November of this year, the U.S. economy created 321,000 jobs, more than in any month in almost three years. It was the 50th consecutive month of job growth, an unparalleled streak since World War II. Compared with the rest of the world, where many economies grow barely grow at all, the U.S. economy looks like a well-tuned engine pulling other national economies forward. Are we out of the recession? Yes, but as a country and a region we are still not at prerecession numbers of home sales and starts nationally or regionally. And it should be a number of years before we get there.
Yes, the economy is much improved. But it hasn’t fully recovered from the catastrophic recession that began seven years ago. There are almost 2 million more non-farm jobs in the USA today than in 2007 – about 140 million in all. But the ranks of the unemployed are up by nearly 2 million — a total of 9.1 million last month — since November 2007.
For most of us, what we think about the state of the economy is defined by our daily experiences. Over the last decade, rents have increased over 60% in our Texas metros, real estate appreciation has been around the 35% range, but wages have increased only 10%. Income is not keeping up with housing and living costs. It may be a while before we see wages regain pace.
The majority of economists and analysts feel that the nation has turned the corner. The U.S. Leading Economic Index rose almost 1% as of November 2014, a sign that indicates a lasting rebound. This latest report suggests steady growth this last year, but some uncertainties remain. Businesses are expanding with caution and concern about the fragility of the recovery, including the latest oil fluctuations. This last week we again saw Federal budget battles until the last minute. 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 2013-14 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 2015. 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.
Even with the positive economic news, we must bear 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 are not at prerecession numbers.
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, and 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 like department stores, supermarkets, hospitals, filling stations, and other types of stores and service establishments.
Our cost of living has not gone up as rapidly as last year, possibly influencing consumer sentiment that the economy has slowed. This year national CPI decreased. Unlike last year where we saw inflation and consumer goods increasing in value, U.S. consumer prices recorded their biggest drop in nearly six years in November as gasoline prices fell.
The Labor Department said on Wednesday its Consumer Price Index fell 0.3 percent last month, the largest decline since December 2008, after being flat in October. In the 12 months through November, the CPI increased 1.3 percent, the smallest gain since February, after advancing 1.7 percent in October. Most analysts had forecast the CPI slipping only 0.1 percent from October and rising 1.4 percent from a year ago. Stripping out food and energy prices, the so-called core CPI edged up 0.1 percent after rising 0.2 percent in October. In the 12 months through November, the core CPI rose 1.7 percent after increasing 1.8 percent in October. The Fed targets 2 percent inflation and it tracks an index that is running even lower than the CPI. 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.
Plunging crude oil prices, which hit a fresh five year low this week on increased shale production in the U.S. and slowing global demand are keeping overall inflation in check for now. Texans have some concern about falling oil prices. Prices below $70/barrel can’t support new production in shale oil fields, so those areas in our region tied to this economic boom should have some concern. But lower oil prices are good for the economy at large.
The economy is recovering, 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 the national and regional economic recovery.
Home price index
One of the most watched residential real estate indexes is the Case-Shiller index. The Case-Shiller Index estimates that the 10-City Composite gained 4.8% year-over-year, down from 5.5% in August. The 20-City Composite gained 4.9% year-over-year, compared to 5.6% in August. The National and Composite Indices were both slightly negative in September. Both the 10 and 20-City Composites reported a slight downturn while the National Index posted a -0.1% change for the month. Home prices nationwide were 22% above the trough reached in the fourth quarter of 2011, but remained 28% percent below the peak reached in the first quarter of 2006. The analysis projects that price appreciation is expected to slow to 5.7% nationally through the fourth quarter of 2014 across all U.S. markets, close to its long-term annual average of 4.5% recorded since 1975.
The supply of homes for sale in 2014 in each Texas metro is still near a record low. Houston has a 3.7 month supply, 10% less than this time last year, which was down 30% from the previous year. Houston continues to be one of the healthiest markets in the nation.
Dallas / Fort Worth has 2.5 month supply, with the number of houses for sale in North Texas at the lowest level in more than a decade. Prices jumped in November as demand for properties surpassed supply. Median home prices in the area rose 12 percent last month from November 2013, according to the latest report on local home sales. It was the second-largest annual price increase this year.
San Antonio has a 3.9 month supply, a 3% decrease, and Austin a 2.9 month supply, a 7% increase from a year ago. That said, most markets had their best year in sales since the start of the recession. And demand for housing in all Texas metro markets is the best it’s been in 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 construction. This increase in business regionally continues pushing material and labor costs up.
All this leads to another challenging year for homebuyers. Buyers who came back to the market after sitting things out during the recession still have to scramble to land a home. Real estate agents and economists expected that with the significant rise in home prices in Texas in 2013-14, 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. So, 2015 will continue to have the challenges of low inventory of last year.
Housing starts and new home sales
In 2014, new home starts are doing better, but are still at about 50 to 60% of prerecession numbers. There were 4,669 multi-family building permits issued in October 2014, 39 percent less than in October 2013. During the 12 months ending in October 2014, a total of 61,526 permits were issued, 14.2 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.
The unemployment rate in the U.S. (5.9%) and Texas (5.1%) 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 unemployed for a long term, it is a challenge to say the least.
The continued positive trends in pricing, foreclosures, and inventory continue to support the case for continued improvement in housing and most real estate, as does the long-term trend in housing starts. The economy is improving, just not at the rate of a year ago. Next time you get in a conversation about the economy, understand that it continues to improve. All the fundamentals are in place. The economy and the continued optimism, even with oil fluctuating over the last few weeks, shows that 2015 will be another good year.