Housing Market Update - Courtesy Integrity Title in St. Louis, MO. Thank you Knox! Oil Prices and Interest Rates It was a very interesting time for a meeting of the Federal Reserve Boards Open Market Committee. As we discussed the past few weeks, the increased pace of job growth will cause the economy to expand more quickly and this will make it easier for the Fed to make a decision to raise rates more quickly. On the other hand, there are other factors in play. For example, many world economies are slowing significantly. Our economy is intertwined with the global economy and the Fed must worry whether this slowdown might affect our strengthening recovery. Oil prices represent another wild card. The magnitude of the drop in the price of oil has been absolutely stunning. The move from $110 per barrel in August of 2013 to less than $60 per barrel by the middle of December represents a decrease of around 50% in a little over a year. Lower oil prices are also good for the economy because of the potential for reduced consumer inflation. This reduced inflationary pressure enables the Fed to be less inclined to raise interest rates. Not all of the effects of lower priced oil are positive. The energy sector is a significant industry and if the price of oil stays too low, we could lose jobs within this sector. For example, the jobs created in the oil shale industry may be lost if it is not cost effective to extract oil from shale. And going back to the global focus, major nations such as Russia depend upon revenues from oil and their situation is potentially much graver than ours. Of course, the oil factor also influences the thinking of the Fed with regard to rates and when the announcement was made on Wednesday, there was a sense that the Fed wanted to calm the markets somewhat with the use of words such as patience. If that means continued low rates with low oil prices, we say Happy Holiday! Renters need to brace themselves: Apartment rent is expected to continue to outpace inflation next year. Its a landlords market, which means strong demand continues to give landlords justification to hike rents. Rent growth will likely reach 3.9 percent in 2015, only a slight dip from 4 percent this year, according to a recent forecast released by the National Association of Realtors®. For at least two more years, vacancy rates for rental apartments are expected to remain low. Low housing inventory and the sizable demand for rentals will continue to spur multifamily construction as well as keep rents rising above inflation through next year, says Lawrence Yun, NARs chief economist. The Bureau of Labor Statistics shows that annual rental inflation is nearly double the price of overall inflation. Builders are increasing the construction of multifamily units but are struggling to keep pace with demand. Source: MarketWatch The size of the typical home is shrinking, which may be a sign that a wider array of buyers, including first-timers, are returning to the market. The median size of a single-family home has decreased for the past two consecutive quarters, and it will likely continue to go down as more first-time buyers look to purchase, according to the National Association of Home Builders. The median size of a single-family home dropped 2.3 percent in the third quarter over the previous quarter, falling from 2,472 square feet to 2,414. That marks the smallest size since the fourth quarter of 2012. Home sizes were on the rise coming out of the recession, mostly due to a surge in the luxury market, NAHB notes. Typical home size falls prior to and during a recession as some home buyers cut back, and then sizes rise as high-end home buyers - who face fewer credit constraints - return to the housing market in relatively greater proportions, NAHB notes on its blog, Eye on Housing. This pattern has been exacerbated in the last two years due to market weakness among first-time home buyers. But the decline in square footage now indicates that entry-level buyers are on their way back. The latest drop in the median home size doesnt reflect changes in preferences, necessarily. It reflects whos buying new single-family homes, Robert Dietz, an economist with NAHB, told The Wall Street Journal. Sources: NAHB & The WSJ
Posted on: Tue, 06 Jan 2015 01:48:01 +0000
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