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Real Estate Market Commentary - May 2015
by Peter L. Zachary, MAI, MRICS

The New York Times had an article on the front of the Business Day section on April 30, 2015 entitled: SHRUGGING OFF SLOW GROWTH, FED PREDICTS A REBOUND. The article stated, "Repeating an all-too-familiar pattern, the American economy barely grew in the first three months of the year," but the Federal Reserve said Wednesday that it expected growth to rebound, suggesting that it still intends to start raising the benchmark interest rate this year.

Despite the Feds optimism, a number of Wall Street forecasts cut their estimate for second quarter growth as they concluded that the weakness, caused in part by cold weather but also by cautious consumers and the strength of the dollar, could linger.

"The US economy stumbled badly in the first quarter," said Scott Anderson, chief economist at the Bank of the West in San Francisco. "Modest growth in the fourth quarter of 2014 turned into virtually no growth in the first quarter of 2015." Weak winter growth has become a hall mark of the post recession economy. The gross domestic product expanded just 0.2 per cent during the first quarter, according to an initial government estimate published Wednesday morning.

Strong job growth during the first two months of the year followed by a disappointing increase of 126,000 jabs in March as the Fed, after a two day statement of a meeting of its policy-making committee, said labor conditions have not improved over the past month. The Federal government is scheduled to release an initial estimate of job growth on May 8.

Inflation also remains sluggish. Although concerns about inflation have subsided, price inflation remains below the 2 percent annual pace the Fed regards as healthy. Wages also continue to rise slowly, notwithstanding a recent spate of headlines as large employers like Walmart have announced modest increases.

The Fed's statement, however, described the latest round of setbacks as likely to be temporary. Officials hope that his year will follow the pattern of last year, when strong summer growth offset an even weaker first quarter.

"Although growth in output and employment slowed during the first quarter, the committee continues to expect that, with appropriate policy accommodation, economic activity wil continue to expand at a moderate pace," the statement said.

The Fed did not directly address when it might start to raise the short term interest rate, which is has held near zero since December 2008. Officials have said when they would consider such an increase at the committee's next meeting in June. Analysts generally predict that the Fed will not act before September, and possibly later. The Fed's statement was approved by a unanimous vote of 10 to 0.

Despite the slow start to the year, many economic forecasters share the Fedís expectation that the warmer weather will usher better news.

In a separate report later in the morning, the National Association of Realtors said pending home sales rose 1.1 percent in March. Pending sales are at their highest levels since June 2013, according to the realtorís index. Some experts say that the housing market should remain strong, especially since the Fed does not seem to be in a rush to begin increasing its benchmark rate. After earlier predictions that the Fed might move as early as June, most economist now say it will wait until its September meeting, or even later. The latest data "strengthens the argument for a delay by the Fed," Mr. Anderson said.

More to come next month. Read previous Real Estate & Housing Market News.

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