Hedge fund manager Barry Rosenstein is not a man to be fazed by the recent rise in mortgage interest rates. Nor is he one to worry that the housing market might be softening, loping the odd million off the $147 million he shelled out for an 18-acre beachfront home in the Hamptons, on New York’s Long Island Sound. So all is well in the housing market.
Not quite. Mr. Rosenstein bought in the high end of a bifurcated market, mirroring the differences in the fortunes of upper- and lower-income families. At the very top, the main problem seems to be a paucity of properties for sale: ready cash is chasing beachfront property, Greenwich estates, and high-rise condos atop Manhattan towers. At the other end of the market, first-time buyers and those hoping to move up a notch confront tight credit, higher interest rates, and prices, reducing affordability. Banks, responding to a government then pressuring them to make loans to low-income borrowers, are responding to a government now criticizing them for doing just that. They are demanding substantial down-payments and relatively robust income statements from potential buyers with stagnant incomes who, unlike Mr. Rosenstein, fear buying into a bubbly market from which several major investors are pulling back: the Blackstone Group has cut purchases of homes to be converted to rentals by 70 percent from last year’s level.
Economy watchers focus less on the prizes captured by hedge-fund billionaires and more on the broad middle and entry-level portions of the market. “A strong housing rebound is an important component of most forecasts that suggest that GDP growth will be stronger … over the next two years,” says Eric Rosengren, president of the Boston Fed. Which means that if Stan Humphries, chief economist at real estate data company Zillow is right, we have reason to worry: “Housing has become less of a drag, but I don’t think it’s going to be that engine [of growth] … and is becoming a less efficient transmission belt for the Fed” to boost the economy. That “transmission belt” is thought to work like this: low interest rates keep house and other asset prices high, which improves consumer balance sheets, encouraging them to spend, accelerating economic growth. Of course, if you don’t own a house or other assets, but do have a modest savings account, the Fed’s monetary policy works in reverse, lowering earnings on your savings account.
Here is a winnowed down version of the data over which experts on the housing market regularly pore:
· Sales of existing homes—single-family homes and condominiums and cooperatives—make up about 90 percent of the housing market.
· Sales of single-family homes have been flat, while sales of condos and coops have fallen.
· Sales of new homes make up the other 10 percent of the market, but are of out-sized importance because they provide employment for construction workers. Those sales in the first quarter of this year were some 1.8 percent below last year’s first quarter, and in March were a frightening 14.5 percent below the prior month.
Prices behaved differently from sales.
· The median price (at the mid-point of all sales) of a new home hit $290,000 in March, up 11.2 percent over the previous month and a similar percentage from the $262,000 peak reached in March of 2007 according to the Commerce Department.
· Other indices indicate that home prices have risen somewhere between 11 percent and 13 percent in the past year.
So much for the rear-view mirror. Now to the windshield, which is fogged over with disagreements among experts. Goldman Sachs’s economists expect “a moderation in the rate of home price gains during 2014,” while their peers at Societe Generale predict that “home prices … [will] continue to appreciate rapidly and indeed show no signs of slowing.” The supply situation is no clearer. Some experts claim that the supply of existing homes for sale is at the highest level relative to sales in almost a year, others that total housing inventory is at its lowest level since 2005. Yellen told Congress, “The recent flattening out in housing activity could prove more protracted than currently expected, rather than resuming its earlier pace of recovery.” Note the appropriate sensible uncertainty reflected in the “could.”
Humana joined the ranks of insurers warning about the potential for large premium increases on next year's Obamacare exchanges. In a conference call discussing its first quarter earning results, Bruce D. Broussard, CEO of Humana, said: "we can see pricing levels anywhere in the single digits to the double digits."
The monthly jobs numbers will be released tomorrow and they are even more eagerly anticipated than usual now that the Obamacare deadline (using the term loosely) has passed and attention is being increasingly paid to the next elections in which jobs will likely be the prime issue.
Still, the weekly number is not without meaning and today’s increase in the number first-time claims – an increase of 16,000 to a five-week high of 326,000 – can’t be called good news or a show of strength after the snows and storms of winter.
The housing market and house prices are the economy’s gift to journalists. For one thing, almost everybody either owns a house, is looking to buy one, or to sell one – and all want to know whether prices are going up, down, or sideways, whether buyers are in the saddle and ride sellers, or vice versa.
Securities and Exchange Commission (SEC) employees aren't necessarily better at investing in stocks than everyone else, but they are much better at getting out of bad investments before the "bad news" hits. That's according to a new paper by Shivaram Rajgopal and Roger M.
When economic forecasts prove wrong, it is customary to blame the weather. So cold that consumers stayed home, or so hot that consumers, well, stayed home. So cold that outdoor construction was unexpectedly low, unless of course unusually high temperatures made such work impossible lest heat stroke afflict the workers. In short, weather is the straw at which sinking forecasters often grasp.
Herewith some thoughts about the outlook for this year. Thoughts, not forecasts, for which I have neither the skill nor the courage. I offer these thoughts in deference to the understandable demand for look-aheads. Human beings are always hunting for certainty, attempting to reduce randomness, surrendering to what Harvard’s Walter Friedman in his new book (Fortune Tellers: The Story of America’s First Economic Forecasters) calls “the near universal compulsion to avoid ambiguity and doubt.” But there is more to the demand for forecasts than this desire for certainty. Businessmen and policymakers want to use forecasts to change the future, to adapt products to predictions of changes in consumer taste, to structure finances so as to take advantage of predicted changes in interest rates and thereby change earnings in the coming year, to obtain “the ability to alter the very thing that one predicts,” to borrow from Friedman. In short, it is often the goal of the purchaser of a forecast to act so as to prove his seer wrong, and then hire him the following year to repeat the process.
Monday will be an important day here in America. It is Labor Day, the day on which many of us say goodbye to summer – the last holiday from work until we carve our turkeys on Thanksgiving Day at the end of November. Barbeques will be fired up, beer kegs tapped, the all-too-short leases on beach homes will expire, stock exchanges will be shuttered, and thoughts turned to the new football season, especially in Washington and New York, where the end of the baseball season can’t come too soon.
Spare a bit of sympathy for the Federal Reserve Board’s monetary policy gurus. They have said they will begin to “taper” their purchases of bonds and mortgages when the unemployment rate falls to 6.5 percent.
The weekly news on initial claims – up 16,000 to a two-month high of 360,000 – is one part of the economic picture and may be a short term glitch. Still, the overall employment picture is not reassuring. Such jobs as are available tend to be part time. Far too many people have simply dropped out of the work force and quit even looking for jobs.
Until recently it has been fashionable to denigrate the U.S. economic recovery: “America is the best house in a bad neighborhood,” sniffed many analysts. No longer. America is now a very good house in a terrible neighborhood.