Housing's Moment of Truth is Near

Posted: Mar 25, 2014 12:01 AM
Housing's Moment of Truth is Near

Seems the latest excuse for every economic metric declining is due to the weather. GDP adjusted from 3.2% to 2.4%, Consumer Semtiment falling below 80 for the first time in months, and now home sales.

In February, according to the NAR, some 4.6 million annualized existing homes were recorded, in line with expectations, and a 0.4% decline from the 4.62 million print in January. This was the 19th monthly drop in a row, the lowest since July 2012, and a 7.1% drop year over year.

Lawrence Yun, NAR chief economist, said conditions in February were largely unchanged from January. “We had ongoing unusual weather disruptions across much of the country last month, with the continuing frictions of constrained inventory, restrictive mortgage lending standards and housing affordability less favorable than a year ago,” he said. “Some transactions are simply being delayed, so there should be some improvement in the months ahead. With an expected pickup in job creation, home sales should trend up modestly over the course of the year.”

With spring here and the last remnants of winter disappearing in the coming weeks the moment of truth is near. How much of the slowdown in home sales is due to weather and how much is due to a stagnant economy?

It was my opinion when the Federal Reserve changed leadership and based upon Fed comments that interest rates would be the driving force in home sales this year. After all, the Fed told us their brilliant plan to print trillions of dollars to create jobs while holding interest rates near zero would end when unemployment reached 6.5%.

It seems the Fed understands the 6.7% unemployment rate is bogus and has now switched direction. Fed Chair Janet Yellen announced last week that interest rates would not be raised for six months following the end of the QE experiment at year's end.

That should mean interest rates will remain low until mid 2015, unless bond vigilantes cause volatility in the bond market, which Yellen is powerless to control.

So the driver of home sales will again be job creation. That's not good news when the Obama administrations plan to create jobs is to increase the cost of labor for employers by raising the minimum wage and to fight 'income inequality' which Obama policies have exacerbated.

One needs look no further than a city on the shores of Lake Michigan, which is the home to America's socialist incubator. Then look no further than DC to see the results of the Chicago transplant's policies.

The head of the Chicago School Union has just requested teaching 'social justice' be mandatory. That should help a school system where less than half of the half who graduate can read.

The same mindset exported to DC in 2008 is being used to attack the perpetual high unemployment in Illinois at 8.7%. After a loss of 27,600 jobs in January, there was a gain of 1,600 jobs in February providing scant relief for 567,100 unemployed.

What is the solution for the lack of jobs, according to Governor Pat Quinn? Spend more on infrastructure and raise the minimum wage. House Speaker Mike Madigan throws in a little 'fairness' last week with a call for a 3% tax on incomes over $1 million. Meanwhile, Illinois Democrats push for a progressive tax because the rich just aren't paying their 'fair share'.

With the economic brilliance on display from Chicagoans Quinn, Madigan, and Obama, if jobs are indeed the driving force to home sales, it's going to be a long year for home sellers and builders.

Wouldn't you like to ask Dr. Yun, why he anticipates "an expected pickup in job creation", and where will those jobs come from? At least he said; " home sales should trend up modestly over the course of the year.”

The moment of truth is near for housing in 2014. The weather will no longer be an excuse as we gather around the grill cooking up some $15 a pound pork ribs, $6 a pound hamburger, $10 a pound wings, and arguing over who will spend the $4 a gallon on gas to go buy the $5 loaf of bread you forgot.

The opinions expressed here are solely those of Fritz Pfister or identified sources, and not necessarily those of RE/MAX Professionals of Springfield, RE/MAX International, or The Capital Area Association of Realtors.