Posts Tagged ‘economy’

Q4 Economic Snapshot: Interest Rates, Inflation Weigh On Housing Market

An abnormally hot real estate market fed by low interest rates and the unexpected burst of buying during the COVID-inspired escape from the city may be finally cooling down in response to rising interest rates, inflation and a skittish Wall Street.

While real estate is taking a direct hit from rising interest rates, inflation is also reducing potential homebuyers’ buying power, especially in the low to mid-range properties. But there are a few upsides that could help us weather the storm.

The team at Alliant National has compiled information on the data points that will most impact the real estate market in Q4.

Inflation and Supply Chain

Two of the biggest challenges in 2022 are likely to persist through the end of the year and into 2023, inflation and supply chain disruptions. Additionally, the war in Ukraine has resulted in Russian energy supplies being cut off to Europe and economic pressures triggering inflation, the rise in interest rates, and potential recessionary trends are creating a confluence of uncertainty.

Concerning current economic trends, the September edition of the Federal Reserve’s Beige Book, indicated that economic activity was unchanged, since their July report, with five Districts reporting slight to modest growth in activity and five others reporting slight to modest softening. However, the report also noted that the outlook for future economic growth remained generally weak, with districts noting expectations for further softening of demand over the next six to 12 months.

Market Fundamentals Remain Steady

Despite deteriorating conditions for some home buyers, steady employment numbers should keep real estate moving through the end of 2022. Although the number of buyers competing for each property has decreased in the last few months, homes are still turning over relatively quickly and, in most regions, are sold at the asking price or more.

Continued tight inventory is expected to keep most markets competitive through the final quarter.

While there is no doubt that the real estate market is likely to continue to slow, especially if the Federal Reserve follows through on yet another rate hike, economists remain watchful of other indicators that could bode well for softening the impact.

According to Fannie Mae’s most recent release, GDP is projected to grow 1.3% in the third quarter of this year, followed by 0.7% growth in the fourth quarter.

However, most economists agree that consumers have been far more unpredictable in recent years and better than predicted GDP growth in Q4 could mitigate some of the other headwinds.

Home equity, another positive indicator for the housing market, has increased dramatically over the past decade. The value of homeowner equity in the United States increased from approximately $8.77 trillion in 2010 to approximately $21.1 trillion in 2020, according to TransUnion. CoreLogic reported recently that homeowners gained another $3.6 trillion from 2021 to 2022 as home values continued to escalate, providing some solid financial strength to help homeowners weather a potential downturn.

First-Time Homebuyer Numbers Dropping

During an October Research webinar in September, Selma Hepp, Executive, Research & Insights Interim Lead of the Office of the Chief Economist for CoreLogic noted that the real estate market is experiencing its biggest hit from first-time homebuyers, who are increasingly squeezed out of the market by the trifecta of higher prices, higher interest rates and inflation that is pricing them out of the market.

In spite of that reality, first-time homebuyers, though making up a smaller percentage of homebuyers in recent months, did bump up their participation in August.

Part of that continued interest could be that many buyers are still finding buying more appealing than renting in markets where rents have escalated faster than monthly mortgage payments in recent years. That reality combined with increasing wages in some sectors is helping offset the trifecta.

Strong Employment Outlook Encouraging

U.S. employment numbers have remained strong through the summer, with the economy adding 293,000 jobs In June, 526,000 in July, 315,000 in August, and 263,000 in September, in spite of recession concerns that predicted otherwise. There are 2.0 job openings for every unemployed person, so the demand for labor is strong and should remain so through Q4, though job openings appeared to be on the decline in October.

In mid-September, the Q4 ManpowerGroup Employment Outlook Survey (NYSE: MAN) indicated that the global labor market was likely to remain strong with steady hiring expected to continue through the remainder of 2022. 

ManpowerGroup Chairman and CEO Jonas Prising reported the need for technology talent along with the growth of employment opportunities in finance, banking, and insurance are keeping the labor market strong, especially in the U.S. This along with the fact that the U.S. labor force participation grew to 62.4% in August bodes well for the real estate market as we finish out 2022.

While employment remains strong, the Conference Board Economic Forecast for the U.S. Economy, released on Sept. 14, forecasts 2023 GDP growth will slow to 0.3% year-over-year.

Ceramic piggy bank with autumn leaves in the background

Businesses: Consider Preparing Financially for Fall

Along with change in season comes change in spending habits

The beginning of this decade has taught us that nothing is and will ever be as predictable as life before COVID. This holds true for every characteristic of personal habits, including finance. What people once valued and invested in quickly shifted in spring 2020. Family, money and where time is spent become the three most popular priorities in American lives.

Undoubtedly, how cash reserves are managed in the office has changed as well.

Fall always signifies a time when individuals and businesses rethink finances and begin to prepare, much like other mammals, for the long winter. Do you need to hold onto money for holiday, family reunion or home/office improvement? COVID has altered most plans for typical autumn and winter activity, so how does one prepare financially for fall during the pandemic?

Here are four steps to review, plan, and hopefully successfully achieve during these uncertain times.

Pay Off Debt

This is always the number one piece of advice a financial expert will give you if you come into funds and have debt. If you have any surplus of money from lack of vacations, going out or get togethers, look at refinancing or paying down debt. Rates are extremely reasonable and many banks and credit unions are willing to work with individuals.

For small businesses there are numerous debt relief programs that are now more critical than ever during COVID. The top tips to pay off debt for a company — create a monthly budget, decrease spending, consolidate debt, negotiate with lenders and increase business (if possible) — are still the same, pandemic or not.

Load the Emergency Fund

In the most uncertain of times, prepare for the most uncertain of experiences. That vacation that didn’t happen, the summer wardrobe that wasn’t purchased; use these types of funds to now fund your emergency fund. If it’s $100 or $10,000, it’s always usable. Then, set the goal for each quarter during the pandemic to grow the emergency fund. This will leave you with less stress which could help keep you healthier.

Reorganize Holiday Plans

There is a good chance that you might not be able to visit family for the typical Thanksgiving, Christmas and Winter Holiday. Instead of flying, you might be driving. Instead of a racking up a large bill at the grocery for the 30-person New Years’ Eve dinner you usually host, reprioritize your holiday plans and spending.

Make a target goal of saving 10 to 15 percent of your usual holiday travel and food budget for emergency funds. If you are longing to travel, but know you cannot fly or drive to your destination this year, look into booking discounted travel for the future with refundable deposits – scooping up numerous COVID offers from airlines and hotels in the process.

When purchasing and shipping presents (still sending office gifts?), don’t forget to send in bulk and do it in advance to save even more money. Things will be surcharged and possibly shut down. Reorganize when you do things and do not waste money on last-minute items.


For a small business, the holiday party was often a year-long highlight with significant others even joining in on the cheer. Don’t forget to reprioritize office holidays as well with restrictions in place. Invest in employees and their needs this year, whether that is more family time, flexibility or a monetary bonus. Open the lines of communication about this season to help understand the needs of the business and its employees.

Home Improvement/Business Office Projects

HGTV has turned everyone into a DIYer (Do it yourself-er). In summer 2020, Home Depot, Ace Hardware, Lowes, etc., were running out of spray paint, brushes, etc., due to the home improvement surge.

Now is the time to be financially responsible with home projects or business office upgrades. Don’t invest in something that might be trendy during COVID but would serve no other purpose once life returns to a normal pace.

Be thoughtful in your approach. What is a good value and what could detract from your home or office? It’s always a good idea when thinking of undertaking a major DIY project to consult your real estate agent.

Adding an outdoor grill and patio area is lovely, but you don’t need to go overboard and buy three types of smokers and enough seating for three dozen. Be reasonable and appreciative of the renovation or addition.

Likewise, office spaces need less space in 2020 and likely beyond as workers adapt to working from home, a trend likely to stick around post-pandemic. Is it really necessary to invest in office art, new chairs or an upgraded kitchen? Likely not. Maybe a new espresso machine is more in the budget and realm of reason.

Spending and financial habits were drastically changed upon the emergence of COVID. Don’t fall victim to a personal financial pandemic as well. Prepare for the change in season with a change in financial attitude.

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Self-fulfilling prophecy?

One expert says fear of a recession could lead to one.

Increasing anxieties over a recession could be the cause of the next recession, according to Analyticom President Dan Geller, developer of the theory of money anxiety.

Geller’s theory explains that an increase in money anxiety can lower consumer confidence and cause a recession by reducing consumer consumption by just 5%. Since consumer consumption makes up about 70% of gross domestic product, a 5% reduction in spending equals 3.5% of GDP, which is greater than the projected GDP for 2019.

In July 2019, the Money Anxiety Index was flat at 44, the same as June, but slightly higher than May’s 42.7 points. While these figures are relatively low and don’t point to an immediate recession, Geller explained that the constant hype about a recession could increase the level of money anxiety.

“An example of how recession hype can increase peoples’ perceived anxiety and reduce their confidence in the economy can be seen in the preliminary August figures of the Michigan Survey of Consumer Sentiment,” Geller explained. “The August index decreased 6.4% from the previous month indicating that the level of consumer confidence in the economy dropped in the first couple weeks of August.”

“Since the Michigan index is based on what people think about the economy, in the form of a questionnaire, it is highly likely that the recent recession hype influenced the respondents’ confidence about the economy,” he explained.

Nearly half of experts surveyed by Zillow back in 2018 said they expect the next recession to begin sometime in 2020, according to the company’s Home Price Expectations Survey, a quarterly survey of more than 100 real estate experts and economists.

Since then, the talk surrounding recession has only increased as more and more experts begin to predict a recession by late 2019 or early 2020.

There were several dire warnings this week about the economic dangers posed by President Donald Trump’s ramped-up trade war with China.

“On a scale of 1-10, it’s an 11,” Cowen Managing Director Chris Krueger said in a note to investors, describing the economic ramifications of the trade war. 

In July, Zillow’s panel of more than 100 housing experts and economists said the next recession is expected to hit in 2020. A few even said it may begin later in 2019, while another substantial portion predict that a recession will occur in 2021. But unlike last time, the housing market won’t be the cause.

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