What Could Stop The Machine
The economy is humming and there is a certain optimism from analysts that the economy will continue to grow from here. Even the Federal Reserve Board in their brief recent statement used the word “strong” to characterize the economy. Though it seems to be “all systems go,” the question for this week is what could stop or slow down the present rate of growth.
For one thing, higher interest rates are the result of a stronger economy and they are designed to make sure that the economy does not run out of control. We could refer to this as an automatic braking system which would only be engaged in an emergency. Certainly, we have had higher rates this year. The strong job market could also keep a lid on economic growth if we actually run out of skilled workers to fill positions. We are seeing this somewhat in the real estate sector as there are not enough skilled workers to build homes.
Speaking of real estate, the shortage of inventory, the resulting higher prices and also higher rates seem to be slowing things down. Real estate and construction in general account for a big chunk of economic growth and any long-term slowdown could definitely affect the economy in general. Another wild card when it comes to economic growth, is the threat of a trade war. Making imports more expensive may help some industries, but hurt others and likewise for exports. We could add more variables such as the uncertain long-term effects of the tax plan, but we think you can see the picture. There are plenty of factors the economy must overcome to continue its present level of growth. We are not saying that this growth won’t continue, but it also makes sense to understand that growth is never a given, nor is any other future prediction.
The First American Homeownership Progress Index (HPRI) measures how a variety of lifestyle, societal, and economic factors influence homeownership rates over time at national, state and market levels. Nationally, potential homeownership demand represented by the HPRI increased 1.1 percent in 2017 compared with 2016, based on changes in the underlying lifestyle, societal and economic data. Factors that increased potential homeownership demand included income growth (+0.30 percent) and rising educational attainment (+0.13 percent), which reflects the influence of millennial behavior on homeownership. The declining unemployment rate also contributed to the rise in homeownership demand (+0.70 percent). Potential homeownership demand increased from 2016 to 2017 in 46 of the 50 metropolitan areas tracked by First American, as demographic and economic trends in these cities raised the likelihood of homeownership. “Millennials’ lifestyle and economic decisions are some of the main reasons we currently have a lower homeownership rate than expected, based on our HPRI,” said Mark Fleming, chief economist at First American. “Yet, it is reasonable to expect homeownership rates to grow as millennials continue to make important decisions, including attaining an education and, later in life, getting married and buying a home.” Source: First AmericanA new home will often come with a warranty from the builder, but that doesn’t mean the builder is on the hook for anything that breaks. Warranties differ from builder to builder, but they typically cover only specific features such as: concrete foundations and floors, carpeting, roofing, siding, garage doors, plumbing and electrical. Builder warranties usually last anywhere from six months to two years. Some last up to 10 years to cover “major structural defects.” However, many builder warranties do not cover: household appliances, shrinkage or expansion of the house, insect damage, or dampness or condensation caused by inadequate ventilation. “A builder warranty can give a false sense of security to home buyers, so you need to be careful,” says Robert Pellegrini Jr., president of PK Boston, a real estate law firm in Massachusetts. Pellegrini recommends that a real estate attorney look over the sale contract. “It’s a significant negotiation,” he says. Pellegrini says it’s important for new-home buyers to know the length of the warranty and what’s included and to learn how to notify the builder if something goes wrong during the warranty period. He says the biggest issue with warranty coverage is the cause of the problems the homeowner wants the builder to cover — “Was the damage due to neglect during building or to misuse by the homeowner?” Source: Realtor.com®
Apparently, the magic number for first-time home buyers is 28. That’s the average age that most Americans think a person should be when they buy their own home, according to a new Bankrate.com report conducted last month among a sample of 1,001 respondents. This may be a bit optimistic in practice, at least for buyers in today’s market. The National Association of Realtors®’ 2017 Profile of Home Buyers and Sellers found the median age of first-time buyers was 32 years old for the second year in a row. The Bankrate study did find some differences in opinion between genders and regions of the country. While a quarter of men think people should strive to buy their first home by age 25, just 12 percent of women say the same. Those who live in the Northeast appeared to have lower expectations for buying a first home than other survey participants. Nearly one in five living in this region responded that the right age to buy a home for the first time is 35 or older, twice as many as any other region. Source: Bankrate.com