WILL THE ECONOMY BLOOM THIS SPRING?

EconomyThe housing and labor sectors remained strong in the first quarter, but what about our economy overall?

GDP Slows While Fed Holds Steady The Federal Open Market Committee (FOMC) met in April and, as expected, held its benchmark Fed Funds Rate unchanged. This is the rate banks use to lend money to each other overnight. The Fed noted that strong job gains have continued, household income has risen and consumer sentiment remains high, but growth in household spending has moderated.

The Fed also expressed concern that, “economic activity appears to have slowed.” This is especially evident in the first quarter Gross Domestic Product (GDP) report, which rose by an anemic 0.5 percent versus the 0.9 percent expected. GDP measures the monetary value of all finished goods and services and is considered the broadest measure of economic activity. GDP growth between 2 and 3 percent is generally considered to be optimal when the economy is at full employment, so the first quarter reading is especially disappointing at this stage of our recovery.

Low Rates Tempered by Limited Inventory The National Association of REALTORS® (NAR) reported Existing Home Sales, which measures the number and prices of existing single-family homes, condos and co-op sales over a one-month period, jumped 5.1 percent from February to March, ending up 1.5 percent higher from one year ago. NAR also reported 4.5 months of existing inventory for homebuyers in March. A six-month supply is viewed as normal, so when inventories are low, the chance of “bidding wars” on homes listed for sale often increases.

But that inventory gap might not be filled by new construction any time soon, since Building Permits (a sign of future construction) hit a 12-month low in March. And Housing Starts (counted when excavation begins on a new home) also fell by 8.8 percent from February to March. However, Housing Starts were up a whopping 14.2 percent from the same time last year, so there’s still a lot of activity ahead for construction.

Finding the right property, and landing it, can be frustrating for consumers at this time. The good news, though, is that historically low home loan rates offer a big incentive for homebuyers to persevere through limited inventory, and for homeowners considering a refinance.

If you have any questions about housing or rates, please call or email today.

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