Economic Update: An Interest-ing Development

08, Apr 2019

The weak housing market gets a helping hand from the Fed


By Charles C. Shinn Jr., PhD

Builder Partnerships Founder and President


After planning to raise interest rates at least three times in 2019, the Federal Reserve recently announced that it will not raise rates at all this year. The Fed cited “global economic and financial developments” as reasons for its decision to hold off on any new interest rate hikes.


This is good news for the housing market, which went very soft in the fourth quarter of 2018 and remained soft in the first quarter of this year. Existing home sales decreased for 11 months before rebounding in February for the largest month-over-month gain (11.8 percent) since December 2015; for the last seven months, the average existing home sales price dropped 8 percent.


New home sales have decreased in seven of the last 10 months, the median and average new home sales prices are down, and permits are down in both single- and multifamily housing. In February, total new housing sales increased 4.9 percent from January; however, sales increased year-over-year by just .6 percent.


This is not unexpected. I’ve been counseling our members for at least the last year that the current housing recovery is getting very long in the tooth. And it’s not just the housing market. While employment is strong and wages have gone up 3.4 percent, the world economy is soft. Consumer spending was down significantly in 2018; the year ended with a thud. Retail sales in December had the largest monthly decline since the recession.


While January retail sales rebounded, it was not nearly enough to overcome the unexpectedly low holiday spending, especially with the government shutdown. Most data through February show the economy losing momentum; income growth has been surprisingly weak and consumer confidence fell 7.3 points in March.  


So, the Fed’s news is a bright spot. Mortgage rates dropped on the news; that helped housing affordability, which has been an increasing obstacle for buyers in recent months. This should stem the decline in housing through the end of the year.


The reprieve in interest rate hikes gives builders a much-needed opportunity to strengthen sales by taking a careful look at their product and make sure they are offering today’s home buyers what they truly want and need in a home at a price the market will support. 


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Economic Update: An Interest-ing Development

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