Tag Archives: economy

Fed Slashes Rates to Shield Economy From Pandemic

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Source: Statista

In an attempt to shield the economy from the fallout of the coronavirus outbreak, the Federal Reserve issued an emergency rate cut for the second time in just two weeks. After slashing the federal funds rate by 0.5 percent to a target range of 1.00 to 1.25 percent on March 3, the Federal Open Market Committee (FOMC) moved again on Sunday, lowering the target range to 0.00 to 0.25 percent, bringing it back to levels last seen in the wake of the financial crisis.

While pointing out that that the U.S. economy came into this challenging period on a strong footing, the FOMC stated that “the coronavirus outbreak has harmed communities and disrupted economic activity in many countries, including the United States. The effects of the coronavirus will weigh on economic activity in the near term and pose risks to the economic outlook. In light of these developments, the Committee decided to lower the target range for the federal funds rate to 0 to 1/4 percent.

Infographic: Fed Slashes Rates to Shield Economy From Pandemic | Statista

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This chart shows the U.S. federal funds target rate since 2007.

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Rising Rates Outweigh Impact of Strong Economy, According to First American Potential Home Sales Model

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Those who don’t sell, don’t buy either and, if you’re a first-time home buyer, it’s hard to buy what’s not for sale, says Chief Economist Mark Fleming

Santa Ana, CA – November 19, 2018 (BUSINESS WIRE) First American Financial Corporation (NYSE: FAF), a leading global provider of title insurance, settlement services and risk solutions for real estate transactions, today released First American’s proprietary Potential Home Sales Model for the month of October 2018.

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October 2018 Potential Home Sales

  • Potential existing-home sales increased to a 6.04 million seasonally adjusted annualized rate (SAAR), a 0.5 percent month-over-month increase.
  • This represents a 61.7 percent increase from the market potential low point reached in February 2011.
  • The market potential for existing-home sales decreased by 0.4 percent compared with a year ago, a loss of 24,600 (SAAR) sales.
  • Currently, potential existing-home sales is 1.25 million (SAAR), or 17.1 percent below the pre-recession peak of market potential, which occurred in July 2005.

Market Performance Gap

  • The market for existing-home sales is underperforming its potential by 6.5 percent or an estimated 391,600 (SAAR) sales.
  • The market performance gap decreased by an estimated 64,800 (SAAR) sales between September 2018 and October 2018.

Chief Economist Analysis: It’s Not the Economy, Stupid

“While the housing market continues to underperform its potential by 6.5 percent, the gap between actual existing home sales and the market potential for home sales narrowed by 1 percent in October compared with September, according to our Potential Homes Sales model,” said Mark Fleming, chief economist at First American. “The housing market has the potential to support more than 391,000 additional home sales at a seasonally adjusted annualized rate (SAAR).

“The primary culprit for the housing market’s performance gap remains severe supply shortages – home buyers can’t buy what’s not for sale,” said Fleming. “While the discussion of rising mortgage rates tends to focus on their impact on the buyer’s affordability, rising mortgage rates create a financial disincentive for existing homeowners with low mortgage rates from selling their homes. This phenomenon impacts both sides of the supply and demand dynamic – those who don’t sell, don’t buy either.

“The U.S. economy is experiencing its second longest economic expansion in history. Gross domestic product in the third quarter of 2018 increased by 3.5 percent, which exceeded economists’ predictions of 2 percent,” said Fleming. “Additionally, the economy has added jobs every month for 97 straight months, unemployment is at 49-year lows, and wages are growing at their fastest rate in nine years.

“In addition to the benefits of a strong economy, the housing market is experiencing a wave of first-time home buyer demand, as millennials age into homeownership,” said Fleming. “According to the latest release of the American Enterprise Institute’s first-time home buyer index, more than 50 percent of all homes were purchased by first-time home buyers as of July 2018.

“Despite the boost in demand and positive economic environment, the market potential for home sales has outpaced actual existing-home sales for five straight years,” said Fleming. “However, this month, the market potential for home sales also saw its first year-over-year decline in over three years. It begs the question, what is driving the decline in the market potential for existing-home sales?”

Rising Rates Cut Two Ways

“Rising mortgage rates have been detrimental to the market potential for existing-home sales, impacting the propensity to sell, as well as the ability to buy. Mortgage rates have risen nearly one percentage point in the past year, and will likely rise to 5 percent in 2019,” said Fleming. “The 30-year, fixed rate mortgage hasn’t been that high since 2009. Rising mortgage rates create a financial disincentive for existing homeowners with low mortgage rates from selling their homes.

“While the housing market benefits from increasing millennial demand for homeownership and a strong economy, rising mortgage rates reduce the propensity of sellers to sell and the buying power of potential buyers,” said Fleming. “Those who don’t sell, don’t buy either and, if you’re a first-time home buyer, it’s hard to buy what’s not for sale.”

What Insight Does the Potential Home Sales Model Reveal?

“When considering the right time to buy or sell a home, an important factor in the decision should be the market’s overall health, which is largely a function of supply and demand. Knowing how close the market is to a healthy level of activity can help consumers determine if it is a good time to buy or sell, and what might happen to the market in the future. That’s difficult to assess when looking at the number of homes sold at a particular point in time without understanding the health of the market at that time,” said Fleming. “Historical context is critically important. Our Potential Home Sales Model measures what home sales should be based on the economic, demographic and housing market environments.”

Next Release

The next Potential Home Sales Model will be released on December 18, 2018 with November 2018 data.

About the Potential Home Sales Model

Potential home sales measures existing-homes sales, which include single-family homes, townhomes, condominiums and co-ops on a seasonally adjusted annualized rate based on the historical relationship between existing-home sales and U.S. population demographic data, income and labor market conditions in the U.S. economy, price trends in the U.S. housing market, and conditions in the financial market. When the actual level of existing-home sales are significantly above potential home sales, the pace of turnover is not supported by market fundamentals and there is an increased likelihood of a market correction. Conversely, seasonally adjusted, annualized rates of actual existing-home sales below the level of potential existing-home sales indicate market turnover is underperforming the rate fundamentally supported by the current conditions. Actual seasonally adjusted annualized existing-home sales may exceed or fall short of the potential rate of sales for a variety of reasons, including non-traditional market conditions, policy constraints and market participant behavior. Recent potential home sale estimates are subject to revision in order to reflect the most up-to-date information available on the economy, housing market and financial conditions. The Potential Home Sales model is published prior to the National Association of Realtors’ Existing-Home Sales report each month.

Disclaimer

Opinions, estimates, forecasts and other views contained in this page are those of First American’s Chief Economist, do not necessarily represent the views of First American or its management, should not be construed as indicating First American’s business prospects or expected results, and are subject to change without notice. Although the First American Economics team attempts to provide reliable, useful information, it does not guarantee that the information is accurate, current or suitable for any particular purpose. © 2018 by First American. Information from this page may be used with proper attribution.

About First American

First American Financial Corporation (NYSE: FAF) is a leading provider of title insurance, settlement services and risk solutions for real estate transactions that traces its heritage back to 1889. First American also provides title plant management services; title and other real property records and images; valuation products and services; home warranty products; property and casualty insurance; banking, trust and wealth management services; and other related products and services. With total revenue of $5.8 billion in 2017, the company offers its products and services directly and through its agents throughout the United States and abroad. In 2018, First American was named to the Fortune 100 Best Companies to Work For® list for the third consecutive year. More information about the company can be found at www.firstam.com.

Contacts

Media Contact:
Marcus Ginnaty
Corporate Communications
First American Financial Corporation
(714) 250-3298

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Investor Contact:
Craig Barberio
Investor Relations
First American Financial Corporation
(714) 250-5214



Birth Rates are Falling Most where Homes are Appreciating Fastest

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– It’s common for birth-rates to tick up as the economy improves, but the number of babies being born is falling even as the economy has recovered from the Great Recession

– Birth rates are dropping most in counties with the fastest-appreciating home values. The trend is most pronounced in pricey California markets.

– An extra 10 percentage-point rise in home values is associated with an extra 1.5 percentage-point drop in birth rates for 25-to-29 year old women.

– In Los Angeles County, 2,588 fewer babies were born in 2016 than expected, and 1,148 fewer in San Diego County. From 2010 to 2016, home values rose over 30 percent in these two counties.

– Quickly rising home prices are likely contributing to couples deciding to hold off on having kids — most want to be financially stable before becoming parents.

Seattle, WA – June 6, 2018 (PRNewswire) The rate of babies being born is dropping the most in counties where home values are appreciating the fastest, according to a new Zillow® analysis(i). An extra 10 percentage-point rise in home values is associated with an extra 1.5 percentage-point drop in birth rates for 25-to-29 year old women.

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The trend is most pronounced in pricey California markets, as well as in Austin, Texas, Brooklyn, N.Y. and Seattle. In Los Angeles County, the birth rate among women aged 25 to 29 fell 17 percent from 2010 to 2016, while home values rose 31 percent. Zillow found that 2,588 fewer babies were born to women in this age group in Los Angeles County in 2016 than would otherwise be expected given local home value growth(ii), the greatest drop in births among all counties analyzed.

In San Diego County, the birth rate fell 19 percent while home values rose 34 percent, which is associated with 1,148 fewer babies than would be implied by the area’s home value growth alone. The birth rate in Travis County fell 22 percent, while home values rose 33 percent — this is associated with 585 fewer babies than expected.

At the onset of the Great Recession, the birth rate began falling, dropping from a high of 2.12 babies per woman in 2007, to 1.93 by 2010. It’s common for birth rates to tick up as the economy improves, but the birth rate continues to fall even as the economy has recovered, to just 1.82 by the end of 2016(iii).

Raising a child is an expensive proposition, and many couples may be questioning whether now is the right time to have kids or may be choosing to move to more affordable communities before starting a family. Many young adults aim for financial stability before having children, but with rising housing costs, financial stability may be increasingly out of reach — a 20 percent down payment on the typical U.S. home requires more than $40,000. Home values across the U.S. are appreciating at their fastest pace in 12 years, and are projected to rise another 6.5 percent over the next year.

Counties with the Greatest Drop in Birth-Rate Relative to Home Value Growth from 2010-2016

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“There are many highly personal reasons beyond housing costs why some couples may delay having children, or choose not to have them at all, and it’s important to remember that correlation does not necessarily mean causation,” said Zillow senior economist Aaron Terrazas. “The big question this research raises is whether millennials are simply delaying childbirth into their 30s, or are actually choosing to have fewer children – and so far, the data are mixed. Recently released preliminary data shows fertility rates among 30-something women fell in 2017 for the first time since 2010, an ominous sign, but then again, respondents to recent census surveys indicate they expect to eventually have just as many children as respondents in prior years. Ultimately, this data adds another layer to the argument that rising housing costs are contributing to meaningful delays in achieving a number of key life milestones, including getting married and buying a first home – two very important steps on the road to starting a family.”

The birth rate was up in counties where home value growth is weaker. In Pima County, home to Tucson, Ariz., home values have essentially remained unchanged since 2010, but the birth rate is up 5 percent, which accounts for 340 more babies than expected.

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Zillow Research

Zillow is the leading real estate and rental marketplace dedicated to empowering consumers with data, inspiration and knowledge around the place they call home, and connecting them with great real estate professionals. In addition, Zillow operates an industry-leading economics and analytics bureau led by Zillow Group’s Chief Economist Dr. Svenja Gudell. Dr. Gudell and her team of economists and data analysts produce extensive housing data and research covering more than 450 markets at Zillow Real Estate Research. Zillow also sponsors the quarterly Zillow Home Price Expectations Survey, which asks more than 100 leading economists, real estate experts and investment and market strategists to predict the path of the Zillow Home Value Index over the next five years. Launched in 2006, Zillow is owned and operated by Zillow Group, Inc. (NASDAQ: Z and ZG), and headquartered in Seattle.

Zillow is a registered trademark of Zillow, Inc.

(i) This analysis relied on the Zillow Home Value Index (ZHVI), and age-specific fertility rates from the Centers for Disease Control and Prevention’s National Center for Health Statistics. Counties with fewer than 10,000 women were excluded from the regression to reduce noise. Several different specifications were tested for robustness and yielded similar results.

(ii) The predicted amount is based on the observed home value growth. For example, according to the trend line Zillow created, Los Angeles County’s home value growth of 31 percent from 2010-2016 would on average be associated with a 10% drop in fertility – this is the expected amount. But, fertility actually fell 17 percent, which is an extra 7 percent below the trend line and expected amount, which equates to 2,588 fewer babies than expected.

(iii) The latest data available.