BUT WILL IT LAST?

According to the CNBC All-America Economic Survey, for the first time in at least 11 years, more than half of all survey respondents rated the economy as Good or Excellent.  Forty-one percent believe the economy will improve in 2018, and forty-two percent approve of President Trump’s job performance.  This poll was conducted by a Democratic firm and pollster, Hart Research – so this is not a firm with an agenda to make the economy and the president look “good”.

What is also interesting is that this poll was conducted December 10-13, during the tug-of-war debate about tax reform; so there is a certain amount of “uncertainty” that may have suppressed these numbers.  It is also worth noting that there has been a significant “talk” on the business-news channels that there are going to be two or three Fed rate-hikes in 2018.  This, one would think, should provide reason to be doubtful about the prospects of a strong economy.  However, the respondents to this poll by a Democratic pollster have feelings that are contrary to that presumption.  Why is that? What does it mean? (If anything.)

Our economy is good, or bad, because we believe it is.  So, what are some things that would contribute to our believing the economy is good/going to improve if:

  • There are multiple negative-news headlines,
  • Alleged lack of certainty in our economic prospects,
  • There aren’t enough positive-news headlines reported by the “Main Stream Media” (if you believe Fox News.)

Well, I submit to you that perhaps, people are making more money, becoming more gainfully employed, and more people are making more money.  According to the Bureau of Labor Statistics, civilian worker compensation was up 2.5%, year over year, in the third quarter of 2017.  In the nonfarm business sector Output was up 4.1%, and hourly compensation was up 2.7%, in the third quarter of 2017. Nonfarm payroll employment was up 228,000 in November 2017. The unemployment rate has been trending downward and is at the lowest rate in 17 years – even in the wake of several hurricanes.   This has probably contributed to the fact that the Average FICO score is up to 700 from a recent low of 688 in 2005.  As consumers earn more money they pay more bills in a timely manner.

This economic data can be viewed against positive birth-rate trends.  The age range that has the largest number of home buyers is 30 to 34 years old.  If we look at the birth rates from 30 years ago we can see that the trend increased for several years. From 3.82 million in 1987 to 3.91 million, to 4.02 million, to 4.17 million before starting a downward trend.  This would indicate that there will be an increasing number of home-buyers in that demographic for several more years before leveling off and then declining.

A statistic that could be viewed as a negative is the fact that housing inventory is very tight across the country.  So in the absence of new construction (still at a 50 year low) we will continue to have a limited supply of product to sell.

So what does all of the above have to do with real estate and housing?  It bodes well for the housing industry and positively for property values.  In the coming years we are going to experience increasing demand, a sense of economic-optimism, increasing wages, an improved consumer-credit profile, and presumably higher employment.  So to extrapolate; there will be more buyers, with a better credit profile, earning more money from more jobs, chasing a limited supply of product (housing inventory).  Economics 101 taught me that a greater demand with a limited supply will drive prices up; and this is supported by empirical data.  THAT is good news for consumers looking to buy, those looking to sell, and the REALTORS® that consumers will work with to receive maximum value from the largest financial transaction of their life.