Home sales decline as investors await budget news
This week the White House released its first major budget proposal, and investors are digesting what it could mean for economic growth and whether the proposal will be dead on arrival to Congress or find room for an agreement.
President Trump's budget theme of "Taxpayer First" is clear throughout the proposal. Budget director Mick Mulvaney has laid out a plan to have a balanced budget by 2027, reduce taxes and cut spending.
However, the budget includes a number of controversial items, such as suggested cuts to social programs and other non-essential government agencies, including agencies of note for the housing and mortgage business. For example, the Department of Housing and Urban Development (HUD) is staring at a 13 percent funding cut. The Consumer Financial Protection Bureau would see its entire funding structure changed and its budget nearly eliminated over the next three years.
The key to these developments is to understand the bigger picture. The budget proposal this week is dependent on several other factors that will ultimately determine if Trump's plan can be successful.
- Tax reform. Trump has proposed streamlining the nation's tax brackets to three from seven, eliminating deductions and reducing the overall tax rates. He also wants to reduce corporate taxes. For his budget to be effective, these tax reforms will be needed.
- More economic growth. Trump's balanced budget roadmap requires a 3 percent economic growth rate. That's a number our economy hasn't touched in more than a decade. Some economists doubt a 3 percent GDP increase can be sustained long-term, especially given the late stages of our current economic expansion. But for lower taxes, reduced spending and fewer social programs to be feasible, the economy must grow faster and lift more people to new levels of prosperity.
In the near-term, this budget proposal will create little more than chatter and debate. Watch to see if economic growth increases, taxes indeed are cut and if Congress can find agreeable terms to move forward. Lots to talk about. More still to wait and see.
Homes sales data
The National Association of Realtors reported this week that existing home sales declined 2.3 percent in April, after a March number that was the best we had seen since 2007. The dip is attributed to ongoing tightness in inventory. Housing supply remains a headwind to growth.
Housing inventory has dropped for 23 straight months on a year-over-year basis. As a result, the median house price jumped 6 percent from a year ago to $244,800 in April.
Meanwhile, new home sales in April also dropped as weakness in the west and a shortage of available affordable homes crimped growth. Sales of new homes slumped 11 percent in April, disappointing investors.
This environment isn't going to change dramatically this season. Expect the trend to continue through the summer months: Tight inventory, strong demand and rising prices.
Fed minutes
We received minutes from the Federal Reserve's most recent closed-door Open Market Committee meeting this week. The tone shifted to a bit more cautious tenor, however analysts are still expecting a rate hike in June.
The minutes indicated an overall cautiously optimistic outlook, even though some economic growth data has been a bit sluggish in the early parts of 2017. With employment at full capacity and inflation concerns in the air, the Fed suggested rate hikes will continue if data supports the moves.
"Members generally judged that it would be prudent to await additional evidence indicating that the recent slowdown in the pace of economic activity had been transitory before taking another step in removing accommodation," the meeting minutes said.
Happy Memorial Day
In closing, I want to wish each of you a weekend with friends and family as we honor those who have paid the ultimate sacrifice for our liberties. We debate a lot of economic policy, dip into politics from time to time and other issues on this blog, but I hope we all remember how fortunate we are to call the Unites States our home and the price many men and women paid to secure it for us.
The first official Memorial Day was in 1868, when flowers were placed on the graves of Union and Confederate soldiers at Arlington National Cemetery. After World War I, the holiday was extended to all soldiers who had fallen in all American wars.
On Memorial Day, our flag is raised to full-staff and then lowered to half-staff until noon. The half-staff position remembers the soldiers who have given their lives in the service of their country. At noon, the flag is raised to full-staff, where it remains the rest of the day. This is symbolic of raising the memories of the dead, and the resolve of the people that these brave soldiers didn't die in vain; that the people resolve to continue the fight for liberty and justice for all.
Have a wonderful weekend.
