- Consumer prices (CPI) fell 0.2 percent in August as declines in gasoline prices offset increases in food and shelter prices. Core inflation, a measure that excludes volatile food and energy prices, was flat for the month. On a year-over-year basis, prices rose 1.7 percent for all items and core items.
- This rate of inflation is just below the Federal Reserve’s 2 percent inflation target  and the information comes as the FOMC meeting wraps up today. A statement on any adjustments to monetary policy as well as economic projections and a press conference with Chair Yellen is scheduled for this afternoon. Expect a continuation of the current taper schedule (a further $10 billion reduction in asset purchases) and perhaps some changes in the policy statement to indicate that the Fed may begin rate increases in the first half of 2015 if the economy continues to improve as expected.
- While lower overall prices may lessen pressure on the FOMC to begin tightening, prices of certain items are rising faster than the 2 percent target.
- For example, rent of primary residences—actual market rents paid by individuals who do not own the home they live in (pictured below)—rose by 3.2 percent from a year ago in August. This was the 5th month of growth above 3 percent for this rent.
- When rents are rising, it becomes more attractive to own a home. Because the bulk of home ownership costs for someone with a 30-year fixed rate mortgage are fixed, even if rents are initially cheaper, potential buyers can expect rent costs to catch up to ownership costs.
- Owner’s equivalent rent of residences (OER), a measure to approximate price change for owner-occupied housing, rose 2.7 percent in August  . This was the 9th consecutive month of growth at or above 2.5 percent for OER. Together, the two rent components contribute more than 30 percent to the overall CPI.
- Real estate agents may be happy about the energy offset. In spite of increases in rents, energy prices were lower, especially Gasoline prices which are down 2.8 percent from a year ago. The 2014 Member Profile shows that the typical REALTOR® spent $1,860 on expenses for the business use of a vehicle in 2013, an amount equivalent to 28 percent of the typical REALTOR® total real estate expenses in the same time period.
 While the Fed does not target this specific measure, the factors driving the Fed’s preferred measure of inflation are the same.
 Owners do not actually pay the increased costs. OER is intended to estimate the change in the amount of money that an owner could rent their home for if they did not live in the home. This estimate is included as a factor in the CPI so as to lessen the effect of variation in the home ownership rate on the price series.
Presentation by Dr. Calvin Schnure, National Association of Real Estate Investment Trusts, at the REALTOR® University Lecture Series
Summary by Jed Smith, Managing Director, Quantitative Research
The REALTOR® University Brown Bag monthly lecture series features presentations by leading economists, analysts, and social scientists on evolving national and regional issues of interest to REALTORS®. The presentation by Dr. Calvin Schnure focused on the economic outlook and its implications for real estate:
Dr. Schnure first discussed the mixed economic recovery: problems with GDP growth and the job market on the negative side; consumer deleveraging, housing market recovery, and reduced drag in government spending on the positive side. Overall, he concluded that the impact of the economy on commercial real estate appeared positive:
- Commercial vacancy rates high, but trending down.
- Rent growth rising.
- Commercial property prices recovering.
- Commercial sales activity raising concerns about the supply of space overblown.
As a Vice President of NAREIT he provided extensive information on the Real Estate Investment Trust (REIT) industry, including types of REITS, operating attributes of listed REITS, Investment Attributes, investment performance, and diversification correlations between REITS and other financial investments.
Both the talk and slides are available at realtor.org.
Based on a report released by The Demand Institute, Millennials and Their Homes: Still Seeking the American Dream:
- In the next five years, 8.3 million new millennial (Gen Y) households will form. It is predicted that millennials will spend $1.6 trillion on home purchases and $600 billion on rent.
- The generation is optimistic: 79% expect their financial situation to improve and 74% expect to move within the next five years.
- Gen Y wants to own. Similar to other survey findings, 75% believe home ownership is an important long-term goal and 73% believe ownership is an excellent investment. 24% already own their home and an additional 60% plan to buy a home in the future.
- Looking forward: when they move, they will want more space and they will move to the suburbs to start families.
- 88% own a car, and they are open to moving locations where grocery stores, restaurants, and retail is within a short drive vs walking distance.
- 44% do think it would be difficult to qualify for a mortgage, and 69% would consider lease-to-own approaches to home buying.
- The data is based on a survey of more than 1,000 millennial households (ages 18 to 29).
- Check out http://demandinstitute.org/sites/default/files/blog-uploads/millennials-and-their-homes-final.pdf to view the entire report.
Corporations/partnerships accounted for approximately 17 percent of land purchases in the past 12 months ending June 2014, according to information gathered from a NAR-REALTORS® Land Institute Survey, conducted in July 2014.
- About two-thirds of land purchases by corporations/partnerships were development (30 percent), commercial (26 percent), and timber (17 percent) lands.
- Slightly more than half of the purchases were for land in RLI Region 3 (KY, TN, NC, SC, GA, AL, MS, FL) and RLI Region 4 (KS, MO, AR, LA, OK, TX).
For the full report, visit: https://rli.memberclicks.net/index.php?option=com_mc&view=mc&mcid=form_175226
Incoming fresh economic data point to continued GDP expansion at a near 3 percent growth rate and about 2.5 million net new jobs over the next 12 months. Inflation remains tame – so far. But upward pressure will build with rent growth pushing up the overall CPI. The Fed will have no choice but to raise the fed funds rates by the spring of next year. Mortgage rates will move up even before the official Fed policy change since the longer-date bonds will rise in anticipation. Homes will become less affordable for those taking out a mortgage. However, when all is said and done, home sales will have notched up 5 to 10 percent in 2015. Real estate brokerage revenue will rise by even more (10 to 15 percent) because of the added boost from rising home values.
Let’s review each of the economic data separately:
- GDP = C + I + G + NX. The equation is always a good starting point to see where economic growth will come from. Consumer spending (C) has been growing roughly at 2 percent for the past three years. A better figure of 2.5 percent was recorded in the most recent quarter. This component will continue to expand for the simple reason that consumers have more income. Americans simply do not chuck away a large portion for savings and the total personal income has been growing at 2.5 percent after inflation on a year-over-year basis. Not only that but the composition of personal income has turned for the better. Non-farm entrepreneurial income is up 5 percent on nominal terms from a year ago while income from unemployment benefits is down 43 percent. Rental income is up 7 percent. Bulk wages and salaries are up 5 percent, the result of job creation. On top of this, the stock market continues to make gains. The market capitalization of S&P 500 companies rose by more than $3 trillion. Such euphoria always leads to greater consumer spending, not less.
- Investment spending (I) can be divided into two parts: business and housing. Business spending on factories, equipment, software and the like rose solidly by 8 percent in the second quarter, though after no gain in the prior quarter. This component tends to be volatile because some of the purchases are bulky and big growth in one quarter can be followed by soft growth in the next. Over the past 3 years, the growth rate averaged a decent 6 percent. Given massive corporate profits, there are plenty of financial resources to be spent by businesses. Aside from corporations, the optimism expressed by small business owners reached the highest since 2007, according to the National Federation of Independent Business. On the housing side, the recovery has been subdued, but the potential for a future ramp-up is strong. Existing home sales are modestly lower from one year ago and housing starts are trying to breakout cleanly above the one million mark. In July, housing starts hit 1.1 million. Given that the normal figure should be closer to 1.5 million, there is ample room for further growth. In other words, investment spending will be solidly positive going forward.
- Government spending (G) will have hardly grown and will likely remain at the zero growth line for awhile. State and local governments have started to boost spending as tax revenues have come in nicely, but the federal government, particularly in regards to national defense, will still have to deal with further cuts. In the most recent quarter federal spending was down 1 percent while state and local government spending was up 3 percent. This component will neither add nor subtract to economic growth in any measurable sense.
- Net exports (NX), like government spending, will be neutral. Whatever growth in exports will be negated by the growth in imports. In the second quarter exports grew by 10 percent while imports grew by 11 percent. Given the generally weaker conditions in European economies, export growth may get shaved somewhat compared to the recent path. The mighty German economy is also slowing to a no growth zone. Meanwhile, the Ukraine has no money to buy. Russia is sanctioned and cannot buy. The overall net export was $463 billion in the red in the second quarter (with imports exceeding exports by that amount). Figures in the upcoming quarters will be roughly the same. That means, the net export picture is neither improving nor deteriorating in any measurable way.
Adding up each of the components implies GDP growing at around 3 percent. That is enough to generate 2.5 million net new jobs. More jobs mean more income. More income means more consumer spending. Businesses then will ramp up their spending to produce more. That, in turn, means more GDP and jobs. The economy appears to be entering a steady-state virtuous cycle in the immediate future.
One external shock to the system is a sudden and fast rise in interest rates. Consumers and businesses could pull back as a result and put GDP growth at risk. But the expected rise in interest rates will be very manageable. The fed funds rate will go from currently zero to 1 percent by the end of 2015. That is still low given that the 20-year average fed funds rate is 2.9 percent, which includes the past 6 years of a zero interest rate policy.
The one variable that deserves careful monitoring is CPI inflation. As long as inflation is contained or not busting out then interest rate increases can be modest. Through the middle of 2014, inflation was showing at 2 percent. But one component of inflation that is not yet contained is rent growth. Rents have been rising and rising and are higher by 3.3 percent in July, the highest in 6 years. Falling apartment vacancy rates imply continued rent gains. Because rent and homeowner equivalency rent (which follows the apartment rent trend) comprise the largest weight to the overall CPI, the growth in rents will inevitably force up CPI. There has been a nice recovery in multifamily housing starts, averaging 360,000 year-to-date and 437,000 in July on an annualized rate – the rise in rental population has quickly soaked up any new supply. Moreover, there appears to be a greater number of single-family homes that are now rentals. So the increased supply may tame rent growth. On the other hand, the overall supply of new homes has been well below the historic norm of 1.5 million for eight straight years, signaling housing shortage conditions that will persist for a while. Rents could then approach a 4 percent growth rate. CPI inflation could get out of hand. The Fed may then be forced to sharply raise interest rates. An unlikely scenario, but it is a scenario worth a close watch.
The 2014 NAR Leadership Summit, an annual event that brings together Presidents-Elect and Chief Staff Executives of the local and state associations, was held in late August in Chicago. As part of the program schedule, NAR Chief Economist Lawrence Yun gave a housing and economic update to attendees. Video of the presentation can be found here: http://www.realtor.org/videos/nar-leadership-summit-2014-lawrence-yun
VIEW THE FULL PRESENTATION HERE: Economic Forecast
At the national level, housing affordability is down for the month of July and from a year ago, due to home prices that continue to rise faster than incomes. Despite those factors, slower-paced price growth and the second lowest mortgage rates of the year are good for a change in affordability.
- Housing affordability is down for the month of July, as the median price for a single family home in the US may have met its seasonal peak.
- The median single-family home price is $223,900, up 5.1 % from July 2013 as year-over-year price gains are currently slowing down. Mortgage rates are up 12 basis points (one percentage point equals 100 basis points) from last year. Nationally, affordability is down from 160.7 in July 2013 to 153.8 in July 2014.
- Affordability is down slightly from one month ago in all regions except the Midwest. The Midwest was the only region to experience a slight gain in affordability due to lower home prices and qualifying incomes. From one year ago, affordability is down in all regions. The West saw the biggest decline in affordability at 4.6 %, with the other regions are not far behind.
- The rise in mortgage rates was modest this month, so purchases at this time are still favorable when you compare the locked-in monthly payment of a mortgage to the rise in rents. New home construction and an increase in inventory during a time of low rates could lead to more manageable price growth and more sales.
- The FHA has agreed to eliminate the pre-payment penalties, a positive change for borrowers that pay off their mortgage, starting in 2015.
- What does housing affordability look like in your market? View the full data release here.
- The Housing Affordability Index calculation assumes a 20 percent down payment and a 25 percent qualifying ratio (principle and interest payment to income). See further details on the methodology and assumptions behind the calculation here.
- Retail sales continue to make good, steady gains. The economy is clearly entering into a virtuous cycle of more jobs leading to more consumer spending. More retail sales in turn are leading to more job hiring by companies that produce things for consumers.
- In August, retail sales rose 5.0 percent from one year ago. That is the strongest gain in over a year. Spending related to the home is rising at a faster pace. Stores that sell building materials and garden equipment saw sales rise by 7 percent. Retail sales of furniture and appliances rose by a hefty 9 percent. Even so, the spending in this area is still in a recovery mode (not expansion mode) and still below the prior peak set during the housing bubble years.
- Past retail activity was also revised up a bit, translating into faster GDP growth. The second quarter GDP growth after revisions may be as high at 4.5 percent while the third quarter GDP growth is tracking to grow by 3.5 percent. Such solid GDP growth rate assures about 2.5 million net new jobs a year.
- When retail sales rise there should be a rise in demand for commercial retail spaces. Interestingly, the demand for retail commercial spaces has not been rising commensurately with the rise in retail sales. A big reason is that some sales are occurring through the internet. The demand for warehouse spaces has therefore been strengthening at a faster pace than for retail spaces.
- NAR projects the vacancy rate on industrial/warehouse space to decline from 8.9 percent a year ago to 8.4 percent by the year end. Meanwhile, the vacancy rate on retail space will barely budge from 9.8 percent to 9.6 percent.
- Most of the increase in retail sales appears to be driven from job creation and new income. But sales are also partly driven by an uptick in consumer debt, which has been on the rise recently. Debt in some cases makes good sense and provides nice returns. But in other cases it can cause unhappiness. Charles Dickens noted: “An annual income of 20 pounds and spending of 19 pounds results in happiness, while an annual income of 40 pounds and spending 41 pounds results in misery.”
Every month NAR produces existing home sales, median sales price and inventory figures. The reporting of this data is based on homes sold the previous month and the data is explained in comparison to the same month a year ago. We also provide a perspective of the market relative to last month, adjusting for seasonal factors, and comment on the potential direction of the housing market.
The data below shows what our current month data looks like in comparison to the last ten Julys and how that might compare to the “ten year July average”, which is an average of the data from the past ten Julys.
- Regionally, one of the first things that sticks out is that 2005 seems to be the best year of sales and 2010 seems to be the lowest point of sales activity. The South has been the strongest region in terms of transactions and the Northeast has had the least amount of sales. The difference in sales is largely a function of population differences in the regions.
- The median price year-over-year percentage change shows the West region went through the largest fluctuation, having the highest and the lowest price growth at different points in the ten year cycle. The West experienced its worst price percentage decline in 2009 and its best price increase in 2012.
- Inventory of homes for sale in the U.S. peaked in 2007, with its lowest point seen just last year. In 2010 the U.S. had the slowest pace of homes sold relative to inventory, with months supply at 11.9. The ten year July average months supply is 7.2. In July 2014 we stand at 5.5 months supply, somewhat below a typical July.
- July’s median price is higher than the ten year July average median price for the U.S. and all four regions. Regionally, while the Northeast and the West have recently experienced lower than the ten year average sales, the Midwest and the South both showed modestly higher sales. Total homes sold in the US for July 2014 is slightly higher than the ten year average, which is a good sign for housing recovery.
View the full PPT slidedeck: July 2014 EHS Vs Ten Year Average
A recent REALTORS® Land Institute Survey provides information on the type of buyer in land sale transactions. Investors accounted for 17 percent of land purchases nationwide in the 12 months ending June 2014.
- Investors bought various land types, with the top types of land purchases being timber (20 percent), development (17 percent), commercial (14 percent), and non-irrigated agriculture land (13 percent).
- Close to two-thirds of the purchases were for land in RLI Region 3 (KY, TN, NC, SC, GA, AL, MS, FL) and RLI Region 4 (KS, MO, AR, LA, OK, TX).
For the full report, visit: https://rli.memberclicks.net/index.php?option=com_mc&view=mc&mcid=form_175226
- Consumers are feeling much better and more confident in recent months: the consumer confidence index in August rose to the highest mark in nearly seven years. Such a trend could lead to improvement in home sales and boost demand for retail commercial spaces.
- Numerically, the index hit 92.4. The last time it was that high was right before the financial market crisis in October 2007 when the unemployment rate was very low at 4.7 percent (versus today’s unemployment rate of 6.1 percent). The index, however, is still shy of 100, where at least half of Americans would be saying that the economy is generally moving in the right direction.
- For home buying, it is not only about financial capacity and mortgage rates. Confidence also matters. People need to feel they will be better off in the future in order to make a major expenditure. The index that captures only the future expectations was 90.9, also nearing the crucial 100 marker.
- The very strong, high stock market has driven total household net worth to an all-time high. However, only about 10 percent of Americans have meaningful exposure to the stock market. Therefore the stock market is not the best gauge of economic sentiments of the middle class. In contrast, the consumer confidence index covers a whole swath of people across all income spectrums and therefore this index is much better in assessing the mood of normal Americans.
- Confidence can change the world. In fact, when the Portuguese first circumnavigated the lower tip of Africa on their way to Asia for spices, the very stormy area with constant violent sea waves near the tip was given the scary name of Cape of Bad Storms. The King of Portugal immediately changed the name to Cape of Good Hope in order to encourage more sailors to make the trip. Portugal and subsequently Spain rose in economic power while the old trade route cities of Venice and Genoa lost economic power.
- In the past 15 years, the net worth of the typical homeowner has ranged between 31 and 46 times that of the net worth of the typical renter.
- Homeowner equity is a substantial component of homeowner wealth. The Federal Reserve’s Survey of Consumer Finances, conducted once every three years, provides a snapshot of family income and net worth along with basic demographic details and more detailed information on where families keep the wealth they have accumulated.
- The most recent survey, conducted in 2013, offers a picture of the situation as home and equity prices normalized for most household balance sheets.
- Data shows that median homeowners had nearly $200,000 in net worth or 36 times that of the median renter who had just over $5,000. The median value of owners’ homes was $170,000.
- Many households own a primary residence (65.2 percent). It is the most commonly held non-financial assets after vehicles (86.3 percent).
About 59 percent of REALTORS® reported that a sample of buyers in July had FICO credit scores of 740 and above. In the 2001-04 time frame approximately, 40 percent of residential loans acquired by the Fannie Mae and Freddie Mac went to applicants with credit scores above 740. REALTORS® continued to report that obtaining a mortgage remains “difficult”, “long” and “complicated”, even for borrowers with “strong ” credit scores. Only 2 percent of REALTORS® reported a purchase by a buyer with a credit score of less than 620.
- The National Association of REALTORS® estimates that one job is generated or supported for every two home sales.
- This estimate is based on a comparison of the economic impact of an existing home sale to various measures of income.
- In 2013, the economic impact of a single home sale was estimated to be more than $68,000. In the same year, GDP per worker was $123,400. Thus, two home sales would generate more in economic impact than the total GDP per 1 worker.
- Comparisons against other types of income measures would show an even higher home sales impact on jobs.
For more detailed information, view the full PDF: The Jobs Impact of an Existing Home Purchase 2013.
A recent REALTORS® Land Institute Survey provides information on the type of buyer in land sale transactions. Individuals/families accounted for 58 percent of the most recent land purchases in the 12 month period ending June 2014.
- The main type of land purchased by Individuals/families was recreation (31 percent), ranch (17 percent), and non-irrigated agriculture (16 percent).
- Over half of the purchases (55 percent) were for land in RLI Regions 3 (KY, TN, NC SC, GA, AL, MS, FL) and RLI Region 4 (KS, MO, AR, LA, OK, TX).
For the full report, visit: https://rli.memberclicks.net/index.php?option=com_mc&view=mc&mcid=form_175226
- Data from the Bureau of Labor Statistics (BLS) showed the surprise of only 142,000 jobs added to the economy in August, ending the six-month streak of net job growth above 200,000. Mixed revisions to June and July data subtracted 28,000 previously reported jobs, but the 12 month average jobs added remains over 200,000 through August. The unemployment rate dropped, as expected, from 6.2 to 6.1 percent—tying June for the lowest level since September 2008.
- In August, job growth occurred in both the government (+8,000) and private sectors (+134,000), but the drop off in the pace of private sector job creation was notable. The biggest job gains were in service industries such as the professional and business services (+47,000), education and health services (+37,000), and leisure and hospitality (+15,000). Goods-producing industries such as construction and mining added a total of 22,000 jobs with 20,000 of these coming from the construction industry. Industries faring less well this month include Retail trade (-8,400), Information (-3,000), and manufacturing (0).
- On net, private industries have increased payrolls by 2.1 percent from one year ago. Construction employment is up 4.0 percent from a year ago with the subsector of residential construction up 9.1 percent. Temporary help services continue to show strong but waning growth up 8.0 percent in the year. Perhaps another sign of a still strong labor market, child day care services employment rose by 2.4 percent for the year. By contrast, federal government employment fell 1.2 percent over the year while state and local government employment grew slightly, by less than 0.5 percent each.
- The earnings picture was good. As hours held steady, hourly and weekly earnings rose 2.1 percent in the past year.
- Digging deeper in to the household survey shows more mixed news. The drop in unemployment rate was caused by an increase in employed persons but also by discouraged workers leaving the labor force. The number of discouraged workers not in the labor force is down 91,000 from a year ago but has been rising since a June low.
- While there was a decrease of nearly 200,000 in the long-term unemployed (27 weeks and more), the number of unemployed persons out of work for shorter durations increased by more than half that amount.
- While the labor force participation rate is back to its 36-year low, the employment to population ratio has held steady after months of improving.
- If one were searching for a more positive data point in this report, one could note that the number of workers with part-time jobs for economic reasons was down by 234,000 for the month, but this subset of data is quite noisy. Just two months ago, this figure was up by 275,000. From one year ago, the number of persons with part-time jobs for economic reasons is down by 621,000, on the whole a good sign.
- What does this mean for markets? The Fed has moved away from a threshold unemployment rate as an indicator for considering rate increases, and the August employment report was surprisingly mixed after unambiguously strong reports earlier in the summer. Inflation expectations seem to be well anchored and inflation is, for now, just near the 2 percent target, but there is some potential for higher inflation if the recent monthly pace of increase is sustained. It’s widely expected that the FOMC will taper the bulk of asset purchases before increasing rates, suggesting that the first rate increase is still at least 2 to 3 meetings away—roughly at the end of 2014 or early 2015. However, stronger or weaker than expected economic performance could alter that timeline.
In speaking with REALTOR® members, I often hear a complaint that the government’s inflation statistics do not reflect reality. Recent data show that the inflation rate for consumer prices has increased about 2 percent above a year ago, but many members disagree with that assessment. In this article we’ll see how it’s possible that both members making this observation and the government data are correct.
Inflation – What are we measuring?
Anytime you are using a measurement tool, you have to know what the tool is measuring. Real estate agents educate clients regularly on this aspect of measurement. What if a client questions your suggested list or offer price noting that prices are rising or falling 10 percent based on a national news story they heard recently? How do you respond? In all likelihood you point out the differences between national and local market conditions. For example, while the national job market may be humming along, your job market may be searing hot as a result of several new tech start-ups and that will be reflected in local home prices that will be rising faster than national prices.
What does the Consumer Price Index measure?
The Consumer Price Index (CPI) measures prices for the spending of all urban consumers. There are other indexes for different subgroups, but this is the measure you will hear about in the news most often. The Bureau of Labor Statistics (BLS) surveys households asking them to list the things they buy on a regular basis and gathers this information into a market basket reflective of the typical or average household consumer. The BLS tracks changes in prices of this “market basket” of goods and services. This is a very good approximation of the overall change in prices, but it is unlikely to reflect the pattern of increase faced by any individual. Let’s look at the market basket to see why.
What does the typical consumer buy?
Below is a pie chart of the relative importance of spending categories in the CPI which is roughly akin to the share of spending. How closely does the market basket of goods reflect your spending habits?
Breaking this chart down to a table showing a few more detailed categories may illustrate the point.
The table above shows that the market basket weights rent of primary residence at just less than 7 percent of spending while owners’ equivalent rent of primary residences is weighted at about 22 percent. From this illustration you can see that as the market basket tries to capture the spending habits of all urban consumers it cannot be an exact match for every individual’s spending because most people either own OR rent their primary residence.
How does the market basket of goods reflect your spending habits? How does it reflect the spending of your potential clients? Are there particular commodities or services that make up more of your budget? What is happening to the prices of goods and services you actually consume? Have you looked for a personal inflation rate calculator to see what your inflation rate might be?
- Two pieces of job-related data released today for the month of August indicate that the job market continues to improve solidly: the normal level of unemployment insurance claims and solid creation in payroll jobs.
- First, initial claims for unemployment insurance filed under the regular state programs averaged 302,000 in August, a slight increase from the July level (296,000) but still within the benchmark of 300,000 that most analysts consider as an indicator of normal economic activity. Fewer claims for unemployment insurance means greater job stability for workers, an important consideration for securing a mortgage.
- Second, a major payroll processing company (ADP) reported that non-farm private employment increased in August by 204,000. The official employment data will be released tomorrow, but the ADP report presages that the official tally for job gains in August will continue to be above the 200,000 benchmark that analysts see as necessary for bringing down unemployment on a sustained basis.
- Overall, jobs are expanding on a sustained level which can support 5 million existing home sales in 2014.
- Very fast growth in multifamily activity has been pushing up overall construction spending. Jobs in the construction sector have yet to match the rise in spending dollars, however. Given the general lagging impact on jobs, construction job growth looks to perk up in upcoming months.
- Numerically, overall construction spending climbed in July and is now higher by 8.2 percent from one year ago. Spending for multifamily construction (apartments and condominiums) increased by a whopping 41 percent, to the point of closing in on a cyclical high. Spending for single-family construction, however, has been uninspiring, rising by 9 percent, well below the recent peak.
- Spending for commercial real estate (classified as nonresidential) rose by 14 percent and has been making steady progress.
- From the recent lows in 2010, overall construction spending has risen by 22 percent. But construction jobs have increased by only 10 percent. Put differently, each construction worker accounted for about $14,000 to construction spending few years ago. Now, the figure has risen to over $16,000. Evidently, some of the underutilized construction workers are being asked to do more with the pick-up in the economy. Inevitably though, job growth will have to catch up with spending.
- Spending for roads and highways are vital for healthy interstate commerce. But the highway trust fund is running out. Congress will need to reauthorize a special funding in a few months. This issue in itself should be non-controversial since highways are what economists call a “public good” where everyone could potentially free ride. That is, irrespective of who pays, non-payers can still use the highway. Therefore, a minor tax collection from all that helps with the cost is a sound policy. (Just as in the case of fixing potholes within neighborhood roads with homeowner association fees). Unfortunately, the trust in government has fallen so low that taxpayers simply do not believe that the money will be wisely spent by Washington bureaucrats.
A recent survey of REALTORS® Land Institute members found that the median price increase for land in the U.S. was 4 percent for the 12 months ended June 2014.
Approximately half of recent land sales were in the heartland of the U.S.: RLI Region 3 (KY, TN, NC SC, GA, AL, MS, FL; 30 percent of reported land sales), and RLI Region 4 (KS, MO, AR, LA, OK, TX; 26 percent of reported land sales). Approximately three-fourths of recent land sales were for Recreational (21 percent), Timber/Ranch (25 percent) and Agricultural (27 percent) uses.