Out of the Frying Pan, into the Fire

by Anirban Basu 16. January 2013

Anirban Basu

U.S. Avoids Fiscal Cliff but Familiar Challenges Remain

With the noteworthy exception of the nation’s still expanding national debt, 2012 will be viewed by economic historians as predominantly a year of progress. Financial markets performed, the number of jobs expanded, unemployment fell, auto sales surged, housing prices stabilized and consumers were active. According to the most recently revised estimate supplied by the Bureau of Economic Analysis, national gross domestic product expanded 3.1 percent during the third quarter of 2012 on an annualized basis. The fourth quarter wasn’t nearly as good, and though fourth quarter data have yet to be released, the expectation is that the U.S. economy expanded only about 1 percent on an annualized basis during the quarter. Despite that, many economists estimate that the nation’s economy expanded 2.2 percent last year, a bit better than 2011’s 2.0 percent performance.

Equity markets started 2013 with a bang, in part because of news regarding partial resolution to a variety of fiscal cliff issues. On the year’s first trading day, the Dow Jones Industrial Average soared 308.41 points or 2.4 percent to 13,412.55. The S&P 500 rose 36.23 points (2.5 percent) to 1,462.42, the index’s biggest one-day improvement in more than a year (December 20, 2011). The NASDAQ composite index rose 92.75 points, or 3.1 percent, to 3,112.26.

While all major stock indexes were down for the fourth quarter, they were up for the year. The Dow Jones Industrial Average rose 886.58 points from 12,217.56 on December 30, 2011 to 13,104.14 one year later (7.3 percent). The S&P 500 rose 13.4 percent to 1,426.19 and the NASDAQ was up 16 percent to 3,019.51.

Despite the heightened uncertainty that characterized the fourth quarter, businesses continued to hire. In December, the nation added 155,000 nonfarm jobs (168,000 private sector jobs) following a gain of 161,000 jobs in November and 137,000 in October. For the year, the nation added approximately 1.84 million net jobs, almost exactly the same number added in 2011. Job growth was sufficient to tug the nation’s unemployment rate below 8 percent. In January 2012, unemployment stood at 8.3 percent. By December of the same year, the corresponding figure was 7.8 percent, translating into 542,000 fewer unemployed workers.

One of the most noteworthy improvements in 2012 occurred in the housing market, which is now associated with both rising sales and median prices. According to the National Association of Realtors, existing-home sales rose 5.9 percent to a seasonally adjusted annual rate of 5.04 million in November from 4.76 million in October. The number of existing home sales is now 14.5 percent higher than a year ago, due primarily to a combination of consistent job growth and extraordinarily low mortgage rates. The national median existing-home price for all housing types was $180,600 in November, up 10.1 percent from November 2011.

Consumer Spending, January 2008 - November 2012

Looking Ahead

Even during the fourth year of economic recovery, massive uncertainty lingers. While fiscal cliff part I is behind us, in front of us is the grisly sequel. Over the next two months, Congress will be wrestling with another set of issues, including whether or not to raise the debt ceiling and to what extent as well as scheduled automatic federal spending cuts.

Taxes have also risen, including in the form of the elimination of the payroll tax cut and an increase in the rate at which dividend income is taxed. With the economy already expanding slowly and with taxes having risen recently, expect the first half of the year to be another period of subpar growth. If Congress fails to appropriately deal with the budget and tax issues now facing it, the first half of the year could be worse than mediocre. On top of that, there is plenty of headline risk emerging from other parts of the world, including Europe where the economy remains in disarray. News from China has been better of late, however.

If Congress is able to successfully navigate the debt ceiling and other issues, the latter part of 2013 could be quite good for the U.S. economy. It is for this reason among others that many financial analysts remain bullish about the longer-term. However, investors should be prepared for a good bit of volatility during the months immediately ahead.

 

Anirban Basu is Chairman & CEO of Sage Policy Group, Inc., an economic and policy consulting firm in Baltimore, Maryland. Basu is one of the Mid-Atlantic region's most recognizable economists, in part because of his consulting work on behalf of numerous clients, including prominent developers, bankers, brokerage houses, energy suppliers and law firms. On behalf of government agencies and non-profit organizations, Basu has written several high-profile economic development strategies, including co-authoring Baltimore City's economic growth strategy. His opinions do not necessarily reflect the opinions and beliefs of 1st Mariner Bank.

Housing Market Slowly Reviving

by Anirban Basu 24. October 2012

Home Sales Prices on the Rise in Maryland


A recent survey indicates that America’s optimism regarding the housing market’s recovery has improved significantly. According to Fannie Mae’s September 2012 National Housing Survey, a monthly poll of 1,000 homeowners and renters, more respondents expect home prices to rise in the next year (37 percent) and the share anticipating declining home prices is down to 11 percent. It is worth noting that such attitudes tend to become self-fulfilling prophecies. People are generally willing to pay more for an asset that they expect to appreciate in value. Importantly, 19 percent of those surveyed say now is a good time to sell, the highest level since the survey began in June 2010. More buyers and sellers translates into a more active market, and that’s good for realtors, title companies and of course, the buyers and sellers themselves.

Already, that renewed confidence working in conjunction with record low or near-record low mortgage rates is having an impact. According to the National Association of Realtors, national existing home sales rose 7.8 percent to a seasonally adjusted annual rate of 4.82 million in August, up from 4.47 million in July. The number of existing home sales is now 9.3 percent higher than year-ago levels. The national median existing home price for all housing types was $187,400 in August, up 9.5 percent from one year ago.

Maryland’s housing market is also improving. According to data supplied by MRIS and the Coastal Association of Realtors, home sales rose 3.5 percent in July on a year-over-year basis, 9.6 percent in August and 6.1 percent in September. Average and median prices have expanded in Maryland for seven consecutive months through September. Statewide, average sales prices were up 6.1 percent since September 2011 while median prices increased 6.8 percent.

Looking Ahead


Many economists believe that the housing market bottomed toward the end of 2011. This year has been one of improvement, as low mortgage rates, ongoing job creation and growing confidence have ushered forth welcome market dynamics. Unit sales and prices are up and forward looking indicators are also promising. Pending sales in Maryland were up on a year-over-year basis in both August and September. Statewide, pending units were up from 4,986 in September 2011 to 5,609 in September 2012, an improvement of 12 percent. Increasingly, realtors can credibly claim that the best time to buy is now and that if prospective buyers wait too long, they may miss out on highly advantageous mortgage rates and will end up paying more for the dream.

They may also have fewer choices from which to select. The active inventory of unsold homes in Maryland continues to decline. In September 2011, months of inventory stood at 8.5 months. One year later, inventory had dropped to 6 months, which means that market equilibrium has been achieved at last. Presently, seven Maryland jurisdictions have months of inventory below this level. Based on pending sales, inventory is likely to continue to fall, increasing prospects for additional home price appreciation.

 

Anirban Basu is Chairman & CEO of Sage Policy Group, Inc., an economic and policy consulting firm in Baltimore, Maryland. Basu is one of the Mid-Atlantic region's most recognizable economists, in part because of his consulting work on behalf of numerous clients, including prominent developers, bankers, brokerage houses, energy suppliers and law firms. On behalf of government agencies and non-profit organizations, Basu has written several high-profile economic development strategies, including co-authoring Baltimore City's economic growth strategy. His opinions do not necessarily reflect the opinions and beliefs of 1st Mariner Bank.

Housing Market Appears to be in Sustained Recovery

by Anirban Basu 19. July 2012
Despite Braking Economy, Housing Moves Ahead

After re-accelerating late last year and during the initial months of 2012, the pace of economic growth and job creation has slowed more recently. In June, national employment expanded by just 80,000 jobs according to the Bureau of Labor Statistics. June represented the third consecutive month during which national job creation was well below 100,000 jobs. During the first three months of the year, the nation's average monthly employment gain was 226,000 jobs. During last year's fourth quarter, the nation's output expanded at a 3 percent annualized pace, but during the first half of 2012, the nation's economy expanded at a less than 2 percent pace.

Maryland has not been immune to the slowdown. Unemployment in Maryland has increased for a third consecutive month in May (6.8%) and the state has been losing jobs. Whether Maryland's economy will continue to decelerate in unclear. Also unclear is whether or not recently observed housing market momentum can persist in the face of broader macroeconomic weakness.

A recent Wall Street Journal article simply proclaimed that the "housing market has turned." Nationally, nearly 10 percent more existing homes were sold in May than in the same month one year earlier. Builders began work on 26 percent more single-family homes in May 2012 than a year earlier and the stock of unsold newly built homes is back to 2005 levels. A recent survey of 47 forecasters found that 44 believed that the housing market has reached its bottom.

Maryland has been participating in housing's recent recovery, but there are indications that the pace of recovery has slowed. Home sales statewide increased 10.5 percent in May on a year-over-year basis. But in June, the year-over-year was just 1.7 percent, with 11 Maryland jurisdictions reporting year-over-year sales gains. Many of the observed gains in unit sales, though certainly not all, took place among core metropolitan area jurisdictions. This is likely a reflection of the influence of first-time buyers, who have been setting off cascading sales dynamics. By contrast, in counties with less dense job markets and first-time buyer influence, sales growth has been less consistent.

Price dynamics remain positive in Maryland. In June, average price was up 6.7 percent on an annual basis while median price was up 8.5 percent. Sixteen jurisdictions experienced year-over-year increases in average sales prices and 19 reported increases in median sales prices in June. Certain jurisdictions continue to experience falling home prices, however, including a number of Eastern Shore jurisdictions: Dorchester County (average price declined 55.8%; median price up 0.1%), Kent County (average price slipped 18.8%; median price fell 25.9%), Somerset County (average price dipped 9.4%; median price fell 18.9%), and Worcester County (average price slid 14.4%; median price decreased 17.2%).

Looking Ahead

Despite growing confidence among economists, there are reasons to remain nervous about the housing industry. Consumer confidence is declining again and job growth slowed dramatically during the second quarter relative to the first both nationally and in Maryland. The next several months should be months of progress, however. Pending sales in Maryland were up on a year-over-year basis in both May (+375 units) and June (+282 units). In June 2011, Maryland's supply of housing inventory stood at 7 months. A year later, inventory had declined to 5.1 months - a level consistent with rising home prices and greater urgency among prospective buyers.

 

Anirban Basu is Chairman & CEO of Sage Policy Group, Inc., an economic and policy consulting firm in Baltimore, Maryland. Basu is one of the Mid-Atlantic region's most recognizable economists, in part because of his consulting work on behalf of numerous clients, including prominent developers, bankers, brokerage houses, energy suppliers and law firms. On behalf of government agencies and non-profit organizations, Basu has written several high-profile economic development strategies, including co-authoring Baltimore City's economic growth strategy. His opinions do not necessarily reflect the opinions and beliefs of 1st Mariner Bank.



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