What is the economic outlook for the near term? Right now, that may be difficult to predict.
On Friday, March 25, the Bureau of Economic Analysis will release the third and final estimate for GDP growth for the fourth quarter of 2015. The first two estimates for Q4 have left much room for improvement (0.7 percent and 1.0 percent).
The labor market seems to have rebounded somewhat in February (242,000 jobs added) from January's downturn (an upwardly-revised 172,000 jobs added) and the labor force participation rate, which has been dismal, reached a 15-month high in February.
Labor market improvements are one of the reasons why Capital Economics, for one, believes that the economy will quickly rebound from the recent slow GDP growth.
“The slowdown in GDP growth to a very modest 0.7 percent annualized in the final quarter of last year is a temporary blip,” Capital Economics said. “With employment increasing by a monthly average of 284,000 during that quarter and final sales to domestic purchasers rising at a more acceptable 1.6 percent rate, we do not believe this is the start of a more serious downturn. GDP growth was 2.4 percent for 2015 as a whole and we anticipate a 2.5 percent gain in 2016.”
None of this was enough to prompt the Federal Reserve to raise the federal funds rate in its March meeting, however. Despite all the positives in the February employment summary, wage growth took a backward step as average hourly earnings declined by 3 cents to $25.35.
And while Fannie Mae's Economic & Strategic Research Group’s March 2016 Economic and Housing Outlook noted the recent labor market improvements, Fannie Mae still predicted that growth in the economy will likely remain flat at 2.0 percent this year.
The report noted that growth in financial markets such as stocks, U.S. dollar, and oil prices, has not been enough to offset the flatness in economic growth, nor raise the gross domestic product figure. This, in turn, could mean negative implications in the housing market for the rest of the year.
"Weakness in net exports and oil-related nonresidential investment as well as the ongoing inventory correction process after unsustainable accumulations during the first half of 2015 should combine to drag on growth," the report noted.
While the Fed predicts four rate hikes this year, Fannie Mae has forecasted only two. So far, two of the eight FOMC meetings for 2016 have come and gone with no rate hike.
A Tough Road for Home Sales
Last month, new single-family home sales failed to impress, dropping nearly 10 percent, while existing-home sales saw little movement. Many in the industry are a bit skeptical of a turnaround this month due to a lack of inventory.
According to data estimates from the U.S. Census Bureau and HUD, new single-family home sales in January 2016 were at a seasonally adjusted annual rate of 494,000, down 9.2 percent from the revised December rate of 544,000 and 5.2 percent below the January 2015 estimate of 521,000.
Ralph B. McLaughlin, Chief Economist at Trulia noted, "New home sales in January start off weak, but the 12-month rolling total looks solid. The share of new homes purchased that haven't started construction sits near a 10-year high, likely reflecting a fall in inventory of existing homes. All new home sales numbers from the U.S. Census are extremely volatile: the margin of error is wide and often includes zero, which means we can't be certain whether the month-over-month or year-over-year changes actually increased, decreased, or stayed flat."
The existing-home sales report from the National Association of Realtors (NAR) proves that lenders are well on the path to recovery from TRID delays. The report found that existing-home sales increased 0.4 percent to a seasonally adjusted annual rate of 5.47 million in January from a downwardly revised 5.45 million in December. Existing sales are now 11.0 percent higher than a year ago, the highest annual rate in six months and the largest year-over-year gain since 16.3 percent July 2013.
Supply and demand troubles have been constant burdens on the housing market's recovery, and Ten-X.com (formerly Auction.com) predicts that existing-home sales will be affected by the lack of options in the market.
Ten-X's Residential Real Estate Nowcast shows that existing-home sales for February 2016 are expected to fall between 5.23 and 5.58 million annual sales, with a targeted number of 5.4 million. This number is up 10.4 percent year-over-year, but down 1.3 percent month-over-month.
"Following the temporary market setbacks brought on by the implementation of the CFPB’s ‘Know Before You Owe’ rules, the latest sales figures indicate that housing is starting off the year on solid ground,” said Ten-X Chief Economist Peter Muoio. “Several positive underlying fundamentals–particularly a stronger labor market and improved household spending power due to reduced energy expenses–should lead to a rise in home sales despite growing global economic concerns and relatively weak GDP growth.”
Here is the lineup for the week:
Monday, March 21, 2016
National Association of Realtors—Existing Home Sales for February 2016
10:00 AM (EST)
Tuesday, March 22, 2016
Federal Housing Finance Agency—House Price Index for February 2016
9:00 AM (EST)
Wednesday, March 23, 2016
Census Bureau and HUD—New Home Sales for February 2016
10:00 AM (EST)
Friday, March 25, 2016
Bureau of Economic Analysis- GDP, Third and final estimate for Q4 2015
8:30 AM (EST)