The Real Estate News Brief: Recession Timeline, Construction Material Costs, Homeowner Wealth Report

In this Real Estate News Brief for the week ending April 22nd, 2023… we have two new forecasts on whether we’ll see a recession this year, some good news about the cost of construction materials, and a report that shows how much wealthier you are if you own instead of rent.    Hi, I'm Kathy Fettke and this is Real Estate News for Investors. If you like our podcast, please subscribe and leave us a review.   Economic News   We begin with a look at economic news from the past week. There are a few new reports predicting that we’ll have a “mild” recession in the second half of the year. The Conference Board’s leading economic indicator index, or LEI, was down for a 12th month in a row in March. It fell 1.2%, which is the biggest decline in the last three years, according to MarketWatch. The index is a compilation of 10 indicators. One Conference Board manager says: “Economic weakness will intensify and spread more widely throughout the U.S. economy over the coming months, leading to a recession starting in mid-2023.” (1)   Fannie Mae economists are also predicting a recession later this year. The GSE’s Economic and Strategic Research Group says the economy is “running out of steam.” Although the economy got off to a strong start this year, the ESR group expects to see an economic contraction during the second half of 2023. Fannie Mae’s chief economist Doug Duncan, says: “The economic slowdown has resumed – whether the end result is a modest recession or simply a soft landing remains unanswered.” He attributes much of his optimism to the strength of the housing market, saying: “The greater-than-expected resilience of the housing sector to the affordability pressures of higher home prices and mortgage rates is central to our expectation that the recession will be modest.” (2)   The Labor Department reported another weekly increase in jobless applications, which are now at their highest level since the end of 2021. Initial claims were up another 5,000 to a total of 245,000. That’s still an historically low number. Continuing claims also jumped a bit. They were up 61,000 to a total of 1.87 million. (3)   Housing starts were down .8% in March, to a rate of 1.52 million. The drop is mostly due to a slowdown in condo construction which fell 6.7%. Starts for single-family homes offset that a bit with an increase of 2.7%. Permits for single-family homes were also higher, by 4.1% while permits for multi-family buildings were down almost 25%. The pullback in apartment construction follows a red-hot building streak over the last several months. (4)    Builders are feeling more confident about the market as demand grows for new homes. The National Association of Home Builders says its monthly confidence index was up one point to 45 in April. It’s the fourth month that the index has gone higher, and it’s now the strongest it’s been since September of last year. Demand is strong because the inventory for existing homes is so low. (5)   Meantime, existing home sales were down 2.4% in March, to an annual rate of 4.44 million. Compared with March of last year, they are down 22%. Prices are also falling which means that current homeowners would lose some of their equity if they sold now. The National Association of Realtors says that prices were down 1% in March, which is the biggest monthly drop in a decade. That’s a national number. A recent report from Black Knight says that prices are falling in the West but rising in the East. Prices are falling the most in cities that experienced a pandemic housing market boom. (6) (7)   Mortgage Rates   Mortgage rates started rising again this last week. Freddie Mac says the average 30-year fixed-rate mortgage was up 12 basis points to 3.69%. The 15-year was up 22 points to 5.76%. (8)   In other news making headlines…   Prices Dipping for Construction Materials    Prices for construction materials are finally coming back to earth. According to an analysis by the Associated Builders and Contractors group, they are lower today than they were a year ago. It’s the first year-over-year decrease we’ve seen in more than 18 months. Construction Dive says that building costs are still almost 40% higher than they were right before the pandemic struck. (9)   Costs for some individual construction materials remain high, however. Bisnow reports that concrete is up 14.5% from a year ago. Construction machinery and equipment is also about 12% higher. Prices are also fluctuating a lot from month to month. Chief Economist Ken Simonson for the Association General Contractors of America told Construction Dive that: “Contractors remain wary about committing to projects” because of the price volatility.   Some contractors are also putting the brakes on hiring. The Bureau of Labor Statistics reports a 50% drop in construction job openings at the start of this year.   Homeowner vs. Renter Wealth Report   Many homeowners are becoming much wealthier than renters, thanks to an increase in their home equity. A study by the National Association of Realtors shows that over the last decade, homeowners became more than 40 times wealthier than the average renter because of that equity. (10)   The average gain since 2012 is about $99,000 for low income homeowners, about $122,000 for middle-income homeowners, and about $150,000 for upper-income homeowners.    That’s it for our latest economic and housing market updates. Please check the show notes for links at newsforinvestors.com. And please remember to click on the Join for Free button at our website for information about real estate investing, and don’t forget to subscribe to this podcast, if you haven’t already!   Thanks for listening. I'm Kathy Fettke.   Links:   1 - https://www.marketwatch.com/story/the-u-s-economy-is-headed-toward-recession-leading-index-keeps-signaling-afe5f314?mod=economy-politics   2​​ - https://www.scotsmanguide.com/news/fannies-latest-forecast-maintains-modest-recession-still-in-play/   3 - https://www.marketwatch.com/story/jobless-claims-climb-to-245-000-and-signal-rising-layoffs-5409f9d7?mod=economy-politics   4 - https://www.marketwatch.com/story/u-s-housing-starts-decline-in-march-as-apartment-construction-cools-717828a7?mod=economic-report   5 - https://www.marketwatch.com/story/builder-confidence-rises-for-fourth-consecutive-month-amid-low-number-of-resale-listings-d377885e?mod=economic-report   6 - https://www.marketwatch.com/story/u-s-existing-home-prices-fall-nearly-1-in-march-biggest-drop-in-a-decade-910e9be5?mod=economic-report   7 - https://www.cbsnews.com/news/home-price-regional-breakdown-mortgage-housing/   8 - https://www.freddiemac.com/pmms   9 - https://www.bisnow.com/national/news/construction-development/construction-material-costs-lower-than-a-year-ago-still-39-higher-than-pre-pandemic-118528   10 - https://www.nar.realtor/magazine/real-estate-news/study-homeowner-wealth-is-40-times-higher-than-renters