- With the exception of the strong housing market recovery, the broad U.S. economy continues to underperform. This week data on the GDP growth of 1.8 percent in the first quarter was uninspiring. The long-term historical average GDP growth is 3 percent. After a recession, GDP tends to grow even faster at 4 to 6 percent in order to compensate for the lost output during the recession. That has not been happening this time. After the harsh 2008-2009 Great Recession, this year will mark four consecutive years of subpar 2 percent GDP growth in the U.S.
- Housing is one bright spot. Residential construction rose at 14 percent in the latest data. Moreover, consumers are spending at a respectable pace thanks to the gains in the housing wealth. In all likelihood, without the housing market recovery the U.S. would be teetering on a recession.
- A quick review of the individual components of the economy (a fun exercise for those who took an Econ 101 course) shows that the prospects of economic growth remain in place:
- Consumer spending grew at a respectable 2.6 percent. With housing wealth rising and some jobs being added, consumer spending will continue to be at around 2 to 3 percent.
- Business investment spending grew at a 0.4 percent. Quite disappointing. But the prospect for growth is good because big companies have massive piles of cash and profits ready to be deployed. Big businesses, however, have been indicating less favorable business climate to spend that cash while small businesses start-up activity is still trending low.
- Government spending fell 4.8 percent. Sequestration is part of the story as well as the need to balance the budget by state and local governments. Though the government spending cuts are clearly a drag to the current economic growth, lower deficits can enhance future prospects for the economy. A case of short-term pain for long-term gain? The amount of spending cuts will steadily diminish in the upcoming months since many state and local governments are now running budget surplus.
- Net exports are not moving anywhere. Though the U.S. still imports more than it exports, there was no change in figure so the net exports had essentially no impact on overall GDP growth. The prospect for improvements in net exports looks good because of the energy renaissance in the U.S. Both oil and natural gas production have been rising in places like North Dakota and Pennsylvania and that will reduce the level of imports over time.
- The forecast is for GDP growth of 1.8 percent for all of 2013 and then picking up speed to 2.7 percent for all of 2014. That translates into about 2 million net new jobs this year and maybe 2.5 million next year.
- Note: while the U.S. is trying hard to grow at 3 percent (the historical average rate), China has been growing at 7 to 10 percent a year. If such a trend continues then China’s broad GDP will surpass America’s within 15 years.
- As a practical matter of China’s keen focus on economic growth, China invests twice as much money in Africa compared to the U.S. even though China’s current GDP is only half the size of the U.S. economy. China knows from its experience that the best way to lift people out of poverty is through economic growth. After Chairman Mao died with his brand of communism, growth policies of subsequent Chinese leaders led to over 500 million Chinese escaping poverty.
- Here are the NAR GDP forecast figures in detail. (PDF)
- Sales growth is highest in the $750,000 to $1 million price tier, and homes priced at $500,000 or more were 11.6 percent of sales in May, but even after declines in distressed sales, one out of every six homes sold was priced at less than $100,000.
- Median prices in May were in the $100,000 to $250,000 price category in the Midwest and South but fell into the higher $250,000 to $500,000 category in the Northeast and West. Looking at all homes in the country, the median falls into the $100,000 to $250,000 price range.
- The median price is the point at which the middle-priced home sold. By definition, half of homes in an area sold at a higher price and half of homes sold at a lower price than the median.
- By price tier, sales were up from a year ago in all price categories in all regions except in the lowest price tier, although the Midwest was an exception to this categorization; sales were up slightly in the under $100,000 category in that region.
- Sales in the lowest price tier began to show less growth and even decline in some areas in 2012. Unsurprisingly, this was the same period when we saw the biggest tapering off in reports of distressed sales in our survey of practitioners. Still, even after the decline in sales in this category and growth in higher price tiers, one out of every six homes sold nationally is priced less than $100,000.
- In April, sales growth was highest in the higher price tiers but the highest growth tier varied by region. In May, the highest-growth price tier for all regions was the $750,000 to under $1 million category. In fact, in the Midwest and West, sales in that price tier were up more than 50 percent from a year ago.
- Strength in the upper price tiers has brought the share of homes-priced greater than $500,000 among those sold to 11.6 percent in May. As discussed with last month’s release, inventory is more plentiful in these price tiers, construction seems limited, and distressed sales are anticipated to continue to drop, expect the share of higher priced homes among those sold to remain above the 10 percent level for the duration of the summer selling season, and possibly into the off-season.
Tight inventory has led to shorter time on the market. The median days on the market fell to 41 days in May (46 in April).
Short-sales had the longest days on market at 79 days (73 days in April) while foreclosed properties were on the market for 43 days (unchanged from April). The median days on the market for non-distressed properties was 39 days (44 days in April ). The information is based on the May REALTORS® Confidence Index (RCI) Survey.