Copyright©2017 Phil Crawford. All Rights Reserved.
This analysis is to provide general macro-economic data and information for intended users and clients of appraisal reports. The appraiser may incorporate this information in the appraisal process and add it to the scope of work of the appraisal assignment to help the reader (of the appraisal report) better understand economic conditions at the time of the appraisal and the stated effective date of the assignment.
Economic news throughout the month of December was mixed as markets and consumers reacted to the 2017 holiday season. The Dow Jones Industrial Average followed its uptrend pattern for 2017 finishing the year at 24,271 points. It is important to point out that “the Dow” recorded 70 fresh closing highs in 2017, a record that has not seen since 1896.
The US Federal Reserve continued with its projected interest-rate increase for December and raised their forecast for economic growth in 2018. The Fed has stated it would like to see three additional rate hikes throughout 2018; however there was an uncommon lack of unity, from within the Fed, concerning these increase projections. It appears that the “Fed Doves” believe three rate increases would be too aggressive while the “Fed Hawks” think the increases would be too slow and risk financial instability.
The bond market showed low volatility in the Month of December continuing its sideways pattern, however many economists are concerned with the “flattening yield curve” that is taking place between the 2-year, 5-year and 10- year treasury notes. A flattening yield curve, within the bond market, has been a past indicator of a pending recession. The year-end closing rates were as follows: 2-Year 1.89% / 5-Year 2.20%/ 10-Year 2.40%. Also, volatility in the Treasury market has sunk to a multi decade low with the 10-year Treasury note falling to a 52- year low, according to a new report from Bank of America Merrill Lynch.
Bill Baruch, President of Blue Line Futures, stated in a CNBC Trading Nation Commentary, “I believe this is going to open the door to an inverted yield curve, wherein the longer-dated Treasuries carry a lower yield than those that are shorter-dated; this development is classically taken as a troubling signal for the broader market.”
The 10-year note and mortgage rates remained overall stable throughout December; however, this pattern changed somewhat abruptly on January 9th 2018 when the Bank of Japan announced a cut to bond buying. Twenty four hours later it was reported by MarketWatch, there were rumors that China may end its U.S. bond buying, as well. “If the reports turn out to be true and China no longer sees Treasurys as an attractive option, the repercussions could be significant as the country is one of the biggest holders of U.S. debt. A significant change in policy could put considerable upside pressure on U.S. yields, the result of which would be an effective tightening for the U.S.,” said Craig Erlam, senior market analyst at Oanda. Bond fund manager Bill Gross, also made the statement that a “bond bear market was confirmed” with the January selloff in Treasurys. It must be stated that the Ten Year Treasury yield has a direct impact on mortgage rates and can impact home prices and values.
The Bureau of Labor Statistics reported the national unemployment rate in December was 4.1 percent. This would be the third straight month at this level and the nation labor participation rate remained overall unchanged at 62.7 percent. Wage inflation continued to remain stagnate in November with wages and salaries increasing by only .2%.
Consumer confidence continued to fall in December after hitting a 17-year high on October 13th 2017. The Conference Board by Nielsen presented the following statement after their most recent Consumer Confidence Survey®.,” “The decline in confidence was fueled by a somewhat less optimistic outlook for business and job prospects in the coming months. Consumers’ assessment of current conditions, however, improved moderately. Despite the decline in confidence, consumers’ expectations remain at historically strong levels, suggesting economic growth will continue well into 2018.”, said Lynn Franco, Director of Economic Indicators at The Conference Board.
The American savings rate for November dropped once more to 2.9 percent continuing to show the weakest level since December 2007. This was when the U.S. economy entered into the financial crisis and Great Recession. New data released by the Federal Reserve reported that American Credit Card debt has now reached a record high of $1.021 trillion. CNBC reported, “America’s credit card balances have never been higher, but there’s no reason to think they won’t just keep climbing,” says Matt Schulz, CreditCards.com’s senior industry analyst. “Combine that with steadily rising interest rates and you have a potentially volatile mix.” Schulz says this new record should serve as wake-up call to Americans: Start tackling your debt now before it grows any more. A recent article from The Maven.net reported. “Shoppers in the U.S. racked up an average of $1,054 of debt this Christmas season — an increase of 5% over last year, according to a survey from MagnifyMoney, a personal finance website. It found 44% of shoppers racked up more than $1,000 in holiday debt, and 5% accumulated more than $5,000 in debt. Bouncing back from those purchases won’t come quickly. Only half of those surveyed expected to repay the debt within 3 months — others (29%) said they need more than five months to pay it off, often leading to interest on the credit card debt and growing balances. In fact, 10% of people who took on holiday debt said they would only be able make minimum payments on credit cards. If the shopper spent $1,054, and paid a minimum payment of $25 each month, he or she would be paying down that balance until 2023.”
Existing homes sales jumped to an 11-year high according to the National Association of Realtors. The NAR reported, “Total existing-home sales which are completed transactions that include single-family homes, townhomes, condominiums and co-ops, jumped 5.6 percent to a seasonally adjusted annual rate of 5.81 million in November”. NAR Chief Economist, Lawrence Yun stated, “Faster economic growth in recent quarters, the booming stock market and continuous job gains are fueling substantial demand for buying a home as 2017 comes to an end,” he said. “As evidenced by a subdued level of first-time buyers and increased share of cash buyers, move-up buyers with considerable down payments and those with cash made up a bulk of the sales activity last month. The odds of closing on a home are much better at the upper end of the market, where inventory conditions continue to be markedly better.”
The U.S. Census Bureau and the Department of Housing and Urban Development reported inventory of new homes for sale dropped to a 4.6 month supply. Inventory shortages have been a significant concern throughout most of U.S. housing markets in 2017.
Finally, the cryptocurrency Bitcoin showed extreme price volatility in the month of December ranging from $11,000.00 to $19,000.00 before closing the year out at $14,500.00.
Overall, the month of December 2017 experienced an increase in home sales, a decrease in consumer confidence, concerns in the bond markets, and increasing warning of heavy consumer revolving debt.
***This appraisal report details the subject’s specific marketing area and shows current supply levels and offers a specific absorption rate analysis which will be contained in the 1004MC report. If there is a lack of specific data, from the subject neighborhood, then the appraiser will utilize data from a greater marketing area to define specific market trends. This information contained within the 1004MC will be client specific and will be impacted by the type of loan, scope of work and assignment (FHA, VA, Conventional, Etc.)
The following information is from the 3rd Quarter 2017.
The United States Census Bureau reported the following information for the third quarter:
Homeownership Rate 63.9%
Homeowner Vacancy Rate 1.6%
Rental Vacancy Rate 7.5%
***The appraiser will take into consideration rental vacancy rates (for a specific marketing area) if the income approach, within the appraisal report, is considered applicable and is developed per the scope of work of the assignment. Vacancy rates have a direct impact on GRMs as well as the development of capitalization rates. Effective gross income and net operating income of real property are also impacted by vacancy rates and are considered in risk assessment analysis by income producing property investors.
National Unemployment Numbers
The following unemployment data is from the Bureau of Labor Statistics/ (www.bls.gov). The current national unemployment rate is 4.4%.
Labor Force Statistics from the Current Population Survey
Age: 16 years and over
Years: 2014 to 2017
2014 6.6 6.7 6.7 6.2 6.2 6.1 6.2 6.2 6.0 5.7 5.8 5.6
2015 5.7 5.5 5.5 5.4 5.5 5.3 5.3 5.1 5.1 5.0 5.0 5.0
2016 4.9 4.9 5.0 5.0 4.7 4.9 4.9 4.9 5.0 4.9 4.6 4.7
2017 4.8 4.7 4.5 4.4 4.3 4.4 4.3 4.4 4.2 4.1 4.1 4.1
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