Expectations are a funny thing. Over the summer of 2019, many experts were predicting a recession. While it's impossible to prove whether the expectations created a slowdown, or were based on a slowdown in the data, sure enough, there were moments where it looked like we might slide. On the flip side, when expectations of a slowing economy don’t come to fruition– and instead, we find a much more resilient situation– those original negative expectations can make way for new optimism and lead the market back up as well.
Are the expectations and reactions based on anything more than a “gut” feeling at the end of the day? Or should we read too much into them? Probably not. The strong economic news we got in January, including a job growth number ahead of expectations, seems far more remarkable because of the expectations many have had about the state of the American and global economy for some time.
So what happened? Maybe nothing at all, and we just had the wrong expectations all along. Or perhaps the expectations were right in the long run, and we’re just experiencing a short-run fluctuation.
That being said, some macro factors have helped. First, the FED moving to cut rates last summer signaled to investors that America’s central bank is looking to extend the expansion as far as it can. Second, a phase one trade deal with China, and the expectation that the trade war is probably on ice through this election year, helped bring a little more stability back into the picture. Third, and most importantly, for our industry, mortgage rates have fallen throughout the month, leaving some markets, especially those in second and third-tier markets, with better costs of living in a great position to outperform expectations. And when housing does well, the entire economy does well.
By the end of January, mortgage rates had fallen by nearly a full percentage point compared to the previous January, which is critical in a market that has a lot of supply-side constraints that are pushing prices up. This made homebuying more affordable and helped to offset some of the appreciation gains sellers have benefited from greatly.
What does this mean moving forward? Oddly enough, the world seems more calm today (relatively speaking) and with less global risk than there was at any time in the last couple of years, even factoring in fears of an epidemic breaking out. This means we should expect to see the positive energy of January carry forward into the spring selling season. At least we do inside of New Home Star and based on reports from our sales teams so far in February, that’s what we’re seeing.
Of course, you know what they say about expectations.
