4 minute read
Growth During Troubled Times
by Patrick Revere
TThe phrase “tenuous at best” is one I often lob at my kids when they’re endeavoring in activities that lead to questionable outcomes. Economic conditions in the U.S., and indeed globally, seem to be in that phase right now.
What could go wrong? Plenty, in fact.
The Federal Reserve at least twice, if not three times since printing, has raised its benchmark rate from zero or near zero in the era of “the Coronavirus
Economy.” The general easing — that is a reduction in the volume the Fed puts into the bond market — several months ago began the slow-burn fight against inflation, and analysts now anticipate added increases of the benchmark rate to the tune of a quarter or half point each as many as seven more times through 2022.
Fed Chairman Jerome Powell said the board will use all of its tools to work toward a soft landing, a difficult-to-achieve mix of levers that can reduce inflation without bringing on recession.
Cynicism is easy. Powell said Fed officials landed safely in 1965, 1984, and 1994, so there is plenty of information to operate on, but acquiesced in noting “I hasten to add that no one expects that bringing about a soft landing will be straightforward in the current context — very little is straightforward in the current context.” »
First Trust Advisors Chief Economist Brian Wesbury, as noted on the MHInsider blog in March and in a newsletter to subscriber said the more direct route to economic stability would be to raise the rate to 2% immediately.
“If you’re a hawk, the attraction is obvious: the Fed is finally on the ball and more likely to get inflation under control. But we also think a dramatic move in policy should appeal to doves. Even the most dovish policymaker at the Fed is forecasting a short-term interest rate of around 2% in late 2023 and late 2024,” Wesbury said, citing the Fed’s dot plot released that week. “Getting to 2% more quickly might open the door to staying there (or above) for a shorter amount of time.”
Housing Growth Slows, Remains Strong
With inflation, labor shortages, and supply chain disruptions from not only the Russian invasion of Ukraine but also a renewed set of lockdowns in China, the biggest problem for builders continues to be getting homes up fast enough. Inventory shortages
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On-time delivery from one of our STRATEGICALLY LOCATED distribution centers, that service 35 states, are stocked and ready for delivery with over $30 million in inventory. continue to be the number one factor holding back sales, though activity remains at a strong pace because of millennials finally entering the housing market in force, as well as the massive internal migration in the U.S. originally sparked by the pandemic.
Demand is so strong, and inventories are so thin, that the National Association of Realtors reports that 84% of existing homes sold in February were on the market for 30 days or fewer.
Buyers simply want the change they want, whether it’s downsizing or upsizing, buying the first home, buying a second home, moving to rural areas or out of state, moving because work at home allows for it, moving for more amenable housing markets, or just moving to move.
The surplus of demand paired with a lack of supply pushed up home prices nationwide by nearly 19% last year. Estimates of growth in ‘22 range from 2% to 14%. Tenuous at best.
However, even though the most pessimistic outlook sees less of a rush in ‘22-23, it is still calling for additional growth. While pricing still benefits the seller, the environment is beginning to change with mortgage rates rising consistently so far in 2022, impacting affordability. Homes sales this year should be closer to listing prices than any time in the last 18 months.
More builders are turning to the middle market, where the lack of inventory is the worst and opportunities are growing due to unmet demand. Growth in affordable housing, in particular, is a must, a mandate, a moral obligation, and a near certainty in the marketplace.
The big question is how builders boost their productivity to overcome the hurdles that are holding back additional construction. Manufactured housing holds the key to this question and will help meet the growing demand for housing on the horizon. MHV
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