There’s been a lot of fuss on how the “fiscal cliff” will get the U.S. economy into trouble in 2013. For starters, here’s a thorough explanation of how it can impact the economy.
(Video published by the WSJ on Oct. 31, 2012.)
National Economic Outlook (December 2012)
It's becoming clear to me that what we've been thinking of as a stage in the recovery actually is the recovery. Job growth at a 1.5 percent annual rate is well below our hopes from previous cycles but its getting hard to imagine faster growth unless the government starts spending more money (ha-ha) or consumers like their finances enough to start clamoring for new homes.
In November, jobs increased by 1.4 percent from last year and unemployment eased to 7.7 percent, basically no change from what we've seen the last six months. Jobs were up 1.4 percent in manufacturing, 1.5 percent in retail trade, 3 percent in business services, 2.2 percent in health care, and 2.7 percent at restaurants. Jobs in government and construction were flat.
65% of Housing Markets Worse Than Four Years Ago
Sixty-five percent of U.S. housing markets are worse off today than they were four years ago according to the California-based real estate research firm RealtyTrac.
The results of the survey arrive the same day as the final presidential debate and just weeks before the general election.
National Economic Outlook (October 2012)
Unemployment in September fell to 7.8% (according to government stats) but otherwise the economic situation was pretty much as it has been for the last six months: improving but at a slow rate. Employment was up 1.4% over last year, with health care and business services providing the bulk of new jobs, as usual.
Some interesting developments: jobs in car manufacture were up 7% as car sales increase 9%; jobs in truck transport were up 4%, signaling that companies are confident enough to increase inventories; the hemorrhaging of teaching jobs has finally stopped; restaurant jobs were up 3%; and jobs in real estate and construction edged upward after years of contraction.
Is the Fed’s QE3 Good for the Housing Market?
Last week, the Federal Reserve announced a new round of “quantitative easing,” or QE3, meaning the Federal Reserve will fire up the printing presses to buy $40 billion worth of mortgage-backed securities (MBS) every month on an open-ended basis in an effort to further drive down historically low interest rates.
Federal Reserve Chairman Ben Bernanke said QE3 should put downward pressure on mortgage rates, helping the housing market. By lowering borrowing costs and spurring banks to lend more, the Fed hopes to induce more spending and eventually set the stage for more hiring. The Fed tied its bond-purchase program explicitly to jobs, saying it will keep buying bonds until it sees a substantial improvement in the labor market.
Who benefits from QE3?
National Economic Outlook (September 2012)
Let's do the jobs math. In August, as in the preceding months, the number of jobs was 1.4 percent higher than last year. We're probably stuck at this growth rate which translates to 1.8 million new jobs per year.
Unemployment is at 8 percent but it rarely gets below 5 percent, so the “excess” unemployment is about 4 million. At 1.8 million per year it would take just a couple of years to put those 4 million back to work, but new people enter the workforce every day so it will probably take twice as long.
What will accelerate the recovery is construction, which has been below replacement levels as we coped with an excess 4 million homes built during the boom. We've almost absorbed that excess and there will soon be unmet demand in many local markets; home prices have bottomed out in half of the 315 markets we cover. Other construction will also increase as state and local governments spend on delayed infrastructure projects.
Just How Cheap is US Housing?
Consider Minneapolis, Minn. You could’ve bought, out of foreclosure, a three-bedroom, two-bath house of 1,356 square feet on a quarter acre lot for about $29,000. It needed a lot of work, but houses in the neighborhood recently sold for $75,000.
Your mortgage would be under $100 per month and about the same in taxes. You could’ve got $1,000 in rent. Even if you had to put $40,000 in the house, your gross yield (cap rate) would’ve been 17.4% on the property.
This is one example sleuthed by my friend Gary Gibson. “The house had mold damage and needed a lot of work,” he wrote. “Beautiful yard, however.”
National Economic Outlook (July 2012)
Why has this economic recovery been so sluggish? In a normal recovery, job growth would be accelerating at this point, rather than dragging along at the same modest level month after month.
One culprit, off course, is the housing boom that left many homeowners with more debt than their home is worth. Another is the federal government that bailed out the big banks feeding the boom and had no money left to encourage job creation. And a third culprit is local governments that added a million jobs during the property-tax boom rather than banking the money and have now had to shed 500,000 of them.
In short, its the boom, stupid!
National Economic Outlook (June 2012)
The Wall Street Journal this week said, Grim Job Report Sinks Markets. The bold headline suggests an economy in retreat. After all, it's an election year. But the May job numbers look like more of the same moderate growth we've been getting in recent months.
Overall, jobs were up 1.4 percent in the past year, right in line with the growth rates of previous months. Manufacturing jobs were up 2 percent, including an 8 percent increase in cars. Retail jobs were up just 1 percent but, significantly, jobs at furniture stores were up 2.4 percent. Jobs at restaurants and bars were up 3 percent. Conclusion: consumers are buying big-ticket items and are treating themselves to small luxuries, important signs of optimism.
Why are Billionaires Buffett and Trump Bullish on Real Estate Right Now? (Part 2)
In Why are Billionaires Buffett and Trump Bullish on Real Estate Right Now? part 1, we stated that the Federal Reserve is committed to stable, steady long-term inflation.
But what about all this talk of hyper-inflation?
There are some doom-and-gloomers out there heralding hyper-inflation. Hyper-inflation means you wake up in the morning and a pound of coffee is $5, but when you go back that afternoon, it’s $7 and by the following morning it’s $10. In other words, the dollar is in free fall and it takes more and more dollars to buy the same goods and services. It’s happened many times in other countries in just the last 50 years. It’s ugly, especially for those who don’t know how to see it coming, how to prepare and what to do when it happens.
Now we understand the argument for hyper-inflation and it’s a good one. So let’s take a look at why real estate right now makes so much sense.
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