October marks the beginning of the final quarter of 2018. While the stock market continues to be firing on all cylinders, data suggests some slowing in the fourth quarter.
The Trump administration’s $2 billion tariffs on China are expected to play a key role in potentially stifling consumer confidence heading into the holidays. With mid-term elections coming up, and an ever increasing political divide, most analysts expect some kind of correction in the stock market.
According to Fannie Mae, the record growth of 4.2% we saw in the second quarter was the economic expansion’s “final peak.” For its part, the housing market, long a significant contributor to GDP growth, began to subtract from overall growth in the third quarter.
Market Updates by the Numbers
- $233,732 – The median sale price of a single family home, up 6.3% year-over-year
- $1 trillion – The increase in equity in mortgaged real estate in Q2 2018 from Q2 2017. “An annual increase of 12.3%,” according to the latest CoreLogic Equity Report.
- .67% – The rise in mortgage rates over the one year period
- 15% – The increase in the principal and interest mortgage payment over the same period
- 0.36% – The predicted percentage point increase in mortgage rates between June 2018 and June 2019
- 4.7% – CoreLogic’s Home Price Index Forecast for U.S. home prices year-over-year as of June 2019
- 9.0% – The drop in July of single family housing starts
- 3.2% – Expected annualized third quarter growth
- 3.0% – Expected full-year 2018 growth
- 2.3% – Expected growth in 2019, provided increased housing inventory and more fiscal stimulus from the government
- 185,000 – The three-month average job gain
- 3.9% – The current unemployment rate
- 0.4% – The increase in average hourly earnings — the biggest rise since June 2009
- 3% – The IHS Markit’s forecasted increase for real disposable income over the next year. (This means homebuyers are likely to see a larger chunk of their income going to their mortgage payment)
- 2.3% – The current inflation rate, up 0.1% in July and exceeding the Fed’s 2% target
- 6% – The increase in value of the dollar which, while giving Americans more buying power, makes American made goods more expensive for our trading partners
- 2.9% – Core Logic’s prediction of consumer spending in the 4th quarter, down from 3.8%
- Existing home prices continue to outpace income growth.
- New home sales declined in July — the third time in four months — to its slowest pace since Oct 2017. According to the National Association of Home Builders Housing Market Index, “builders face headwinds from softening demand, especially in the sales expectation and traffic of prospective buyers components. In addition, pricing to cover material and labor cost increases has been challenging.”
- September and December interest rate hikes are expected for a total of 4 for the year.
- Consumer confidence jumped to the highest level since October 2000. Consumers appear to be happy at present, but appear less optimistic about the future.
- The Fannie Mae Home Purchase Sentiment Index® has trended lower from its record high in May, with the net share of consumers saying now is a good time to buy a home — sliding further in August to the second lowest reading in the survey’s eight-year history.
- Canada has still not signed a renegotiated NAFTA Treaty (Mexico has).
- Recently imposed tariffs totaling $200 billion dollars on Chinese imports could weaken an already slowing Chinese economy and raise prices for Americans.
- A strong dollar adds to the U.S. trade deficit, presenting downside risk to trade and economic growth in developed and emerging economies.
- The “The Tax Act” ultimately had little impact on GDP in the second quarter, even as corporate profits improved.
The Bottom Line
While the future of the housing market may appear bleak, the increased equity may be a silver lining for both lenders and homeowners. The big question is whether or not those homeowners will be ready to sell come next spring. As for new home construction, a renegotiated NAFTA agreement with Canada could help to lower some material costs and encourage new construction. But, until average workers begin to see more significant wage gains, many potential homebuyers will simply not be able to afford a home.