2019 - Issue 2 - Chairmans Report - Lehigh Valley

THE

2019

CHAIRMAN’S REPORT A Message from Lawrence F. Flick IV Chairman Berkshire Hathaway HomeServices Fox & Roach, REALTORS® and The Trident Group

2019 | ISSUE 2 · LEHIGH VALLEY

A good real estate market… thanks to the Fed!

A growing economy increases demand, which leads to higher prices. Higher prices can lead to inflation and higher interest rates.

5% 4% 3% 2% 1%

2019

2018

2017

2016

2015

2014

2013

2012

2011

0 2010

We’ve been experiencing a solid economy for the past eight years. The economic trends contributing to this include low inflation, a low unemployment rate, wage growth, and a moderate increase in home values.

Percentage Mortgage Rates 6%

2009

Good real estate markets don’t just happen. They are the result of a number of converging economic trends that form a foundation for what we consider to be a good market. And that’s what we have now — a good market that has been steady for the past three years. Real estate sales are up 75% from the bottom of the market in 2012.

Source: Federal Reserve Bank of St. Louis

After rising slightly, mortgage rates are again at historic lows.

Opening doors to life’s most meaningful dreams

1

After many years of a strong economy, the Fed started to raise rates resulting in an economic slowdown in the 4th quarter of 2018. To its credit, the Fed took notice and pulled back from its plan. Consequently, mortgage rates dropped by almost 1%.

As it turns out, the inflation rate has remained stable.

This is unexpected, given we are currently experiencing historically low unemployment rates and wage growth.

Last in this series of positive trends is home prices.

Home prices have increased at a sustainable rate, which benefits both home buyers and sellers. According to the Federal Home Finance Agency’s Home Price index, home values in the Lehigh Valley have increased 15% since the bottom of the market in 2012, and 5% for the past year.

Percentage Inflation, Unemployment and Wages 12% 10% 8% 6% 4% 2%

Inflation

Unemployment

2019

2018

2017

2016

2015

2014

2013

2012

2011

2010

2009

0

Wages

Source: Federal Reserve Bank of St. Louis

Home prices have increased at a sustainable rate, which benefits both home buyers and sellers.

2

So what does this mean?

Simply put, it is a great time to either buy or sell a house.

So what does this mean? Simply put, it is a great time to either buy or sell a house. Though Federal Reserve Bank policy has been successful in maintaining these positive trends, they won’t continue indefinitely. If history is an indicator of the future, higher wage growth and rising prices will begin to cause inflation. The Fed will raise the federal fund rate which will cause mortgage rates to rise.

Higher home prices and higher interest rates will result in buyers obtaining less house for the same amount of money. Buyers will experience affordability challenges which will hurt sellers’ opportunities to get the best price and terms. So if you are in the market for a new home, whether you are a buyer or a seller or both, seriously consider your purchase or sale before this window of opportunity closes.

Lawrence F. Flick IV Chairman Berkshire Hathaway HomeServices Fox & Roach, REALTORS® and The Trident Group

What buyers should know: If you’ve started looking for a home, you understand what I mean when I say inventory is limited. My best advice to you is to stay on top of things, look at homes as soon as they come on the market, and when you see one you like, act fast. You will probably be competing with other highly motivated buyers. Another important step to ensure sellers take your offer seriously is to be pre-approved for a mortgage. Please see your Trident Mortgage Company mortgage consultant and get pre-approved. Not only will this make you more confident about a mortgage, it will propel your offer to the top of the pile.

What sellers should know: Right now, in many areas and price ranges, housing inventory is scarce. This creates a favorable advantage for sellers because homes that are priced correctly and show well often receive multiple offers. When this happens, sellers know they are getting the best price for the property plus have more flexibility with settlement date and other terms. But homes not priced correctly will not sell. In this market, buyers are not willing to overpay for a home, even if they really love it. And reality TV shows about real estate and renovation have produced a consumer mindset that a home for sale should be move-in ready. Today’s buyers want their expectations and needs met; they do not want to tackle a home improvement project.

Your BHHS Fox & Roach sales associate can help you price your home and stage it for maximum appeal.

3

Opening doors to life’s most meaningful dreams

AN INDEPENDENT VIEW Joel L. Naroff is the President and founder of Naroff Economic Advisors, a strategic economic consulting firm. He is the author of Big Picture Economics, which has been translated into Chinese. Joel has won numerous forecasting awards, is often quoted in the national and international press, and is a newspaper columnist and radio commentator.

National Economic Outlook: After having peaked in the spring of 2018, national economic growth has slowly but steadily decelerated. That doesn’t mean the economy is faltering: It isn’t. Job increases are still well above expectations, business and consumer confidence remain near record highs and governments are spending like crazy.

Unfortunately, the ability to sustain the solid activity is limited by a variety of factors. Most critically, consumer debt is rising while at the same time, income gains are moderating. Vehicle sales have faded and housing is showing few signs of improving. Trade concerns are creating uncertainties that are restraining capital spending. Tariffs are raising prices for consumer goods and business inputs. For the remainder of the year, it is likely growth will fade to levels closer to trend, which is about 2.25%.

Interest Rates and the Housing Market: Interest rates have plummeted, largely because of the uncertainty created by the trade war with China. The Chinese have moved from appeasement to antagonism and they are preparing for a long period of disagreement. With the world’s two biggest economies trying to harm each other, the outlook for global growth is dim. Indeed, we are already seeing impacts on European economies and that could spread to other parts of the global economy.

The bond markets are reflecting those fears. If the trade uncertainties are resolved, the bond markets are likely to react quite sharply. Current rates are more reflective of a potential global recession than moderate growth. The possibility of a jump in rates over the next six months cannot be ruled out.

Instead, it should be game-planned for.

Despite the lowest bond rates in about 18 months, the housing market remains lethargic. There has been some improvement in new home sales but only modest gains in the existing home market. One bright spot is that inventories seem to be finally rising. They are still way too low, but resolving the lack of supply, which has been a main reason demand is so soft, is critical.

The outlook is for housing sales to increase slowly but not enough to change the downward direction of price gains we have been seeing in most markets.

We may be nearing the end of that decline, but an improvement in demand will likely stabilize the price decline, not cause price gains to reaccelerate.

Looking toward 2020, unless the trade situation is clarified soon, a further deceleration in growth during the first half of the year is likely. While a recession is not expected over the next twelve months, the second half of 2020 is when we could start seeing significant weakness, especially if the trade war persists.

REAL ESTATE

4

|

MORTGAGE FINANCING

|

TITLE INSURANCE

|

PROPERTY & CASUALTY INSURANCE

© BHH Affiliates, LLC. An independently operated subsidiary of HomeServices of America, Inc., a Berkshire Hathaway affiliate, and a franchisee of BHH Affiliates, LLC. Berkshire Hathaway HomeServices and the Berkshire Hathaway HomeServices symbol are registered service marks of HomeServices of America, Inc.® Equal Housing Opportunity. Information not verified or guaranteed. If your home is currently listed with a Broker, this is not intended as a solicitation.