Real Estate News, Analysis and Commentary in West Michigan & Lakeshore

February 7th, 2018 3:22 PM
Economic news for the month of January started out uneventful as markets continued their upward patterns that were typical for the fourth quarter of 2017.

The stock market hit fresh highs on January 26th 2018, closing at 26,604 points for the first time.  These patterns, however, changed abruptly on January 30th, 2018 when the market experienced a correction of nearly 400 points.  The correction further took hold over the next few trading sessions and, after having the worst one-day point drop in history, The Dow finally closed at 24,334 points on February 5th, 2018.   This brief period ended with the equity markets declining by nearly eight percent.

The correction in the equities market came as no surprise to real estate appraisers and market experts who’ve kept a close eye on the ever-flatting yield curve between the ten-year, five-year and two-year Treasury notes.  A flattening yield curve has historically been an early indicator of a pending recession.  It was speculated that if bond yields would continue to rise they would apply pressure to equity markets and money with flow into bonds seeking a more consistent and favorable yield.  It is important to note that the S and P 500 average dividend rate for December of 2017 was 1.85 percent.  The ten year bond yield reached as high as 2.883 percent in January and the five year note went as high as 2.56 percent. These levels in treasury yields have not been seen since 2014.  Many bond experts have warned that a 30-year Treasury bond yield over 2.7 percent could be trouble for equity and housing markets.

As the bond yields increased throughout January, mortgage interest rates increased as well.  It is uncertain if the ten year bond will continue a push to three percent level however, in a recent Bloomberg Markets article Mr. Larry Milstein, managing director of government-debt trading at R.W. Pressprich & Co. in New York said, “You have to watch the 3 percent level, there is a magnetic force there to some extent that will pull the yield to test that. But we have supply next week and we need to see if buyers come in.”  It must be stated that the Ten Year Treasury yield has an impact on mortgage rates and can have a direct impact home prices and values.  

Wage gains for January were the biggest in more than a decade and added to some bearish speculation that U.S. inflation expectations would continue to increase.  These increasing inflation targets should continue to support growing confidence that the Federal Reserve is on course to raise interest rates at least three times in 2018, if not more.

Janet Yellen exited her position as Chairperson of the Federal Reserve on February 2nd 2018 as the market closed 666 points down for the day.  In her parting remarks she made statements about equity markets being overvalued, "I don't want to say (equities) are too high”, she said, “But I do want to say high. Price/earnings ratios are near the high end of their historical ranges."  She also added comments concerning commercial real estate that valuations were “quite high” compared with rents.  "Now, is that a bubble or is too high…there, it's very hard to tell. But it is a source of some concern that asset valuations are so high.”

The Bureau of Labor Statistics reported the national unemployment rate in January was 4.1 percent.  This would be the fourth straight month at this level and the national labor participation rate remained overall unchanged at 62.7 percent.
Consumer confidence fell in December, however, reversed course in January.  The Conference Board by Nielsen presented the following statement after their most recent Consumer Confidence Survey®., “Expectations improved, though consumers were somewhat ambivalent about their income prospects over the coming months, perhaps the result of some uncertainty regarding the impact of the tax plan,” Lynn Franco, director of economic indicators at the Conference Board, said in the statement. “Consumers remain quite confident that the solid pace of growth seen in late 2017 will continue into 2018.” 

The American savings rate for December 2017 dropped once again to 2.4 percent continuing to show the weakest level since December 2007.  The Wall Street Journal recently noted that Americans are simply feeling good about their financial lives and that it’s possible that we’ve reached the point in the business cycle where households are now excitedly spending paper gains after taking a look at their stock accounts or checking their home values.  Americans may be feeling better even though they don’t have a lot of extra cash flow.  The Journal’s Grep Ip tweeted; “Americans may think “their assets are doing the saving for them.” Some speculate this trend will change if any additional stock market or real estate correction continues to take place into 2018.  

Existing-home sales subsided throughout most of the country in December, but 2017 as a whole edged up 1.1 percent and ended up being the best year for sales in 11 years, according to the National Association of Realtors®. NAR Chief Economist, Lawrence Yun stated,  “Existing sales concluded the year on a softer note, but they were guided higher these last 12 months by a multi-year streak of exceptional job growth, which ignited buyer demand. At the same time, market conditions were far from perfect. New listings struggled to keep up with what was sold very quickly, and buying became less affordable in a large swath of the country. These two factors ultimately muted what should have been a stronger sales pace.” Yun also stated, “Closings scaled back in most areas last month for this same reason. Affordability pressures persisted, and the pool of interested buyers at the end of the year significantly outweighed what was available for sale.”

Finally, the cryptocurrency Bitcoin showed extreme price declines in the month of January ending the month at $10,138 as some now speculate the end of what may be the biggest speculative bubble in history.

Overall, the month of January 2018 experienced heightened concerns in the bond markets, increased volatility in US equity markets, sluggish housing sales, and more American decreasing their personal savings and increasing spending based on confidence in their “paper assets.”

December 5th, 2016 11:15 AM

December 5th, 2016 11:10 AM