2013 Recap: Not a Bad Plow Horse
I love the majestic power, grace, and speed of a thoroughbred race horse. But if I want to place a bet on what type of market I want to invest in, I’ll take a plow horse every time.
In 2013, Utah County saw a quality plow horse in action. Sales climbed a steady 3 percent in December 2013 and 11.5 percent for the entire year. Prices soared 15 percent to $218,000. Low inventory was the limiting factor on the market but listings did pick up throughout the year and rose 22.5 percent in December to 2,378.
Rates remain at near historical lows and all signs point to a strong winter sales and a market ready to pick up momentum in the spring.
Roger Merrill of Merrill Financial Associates in Provo put it this way, “Brian S. Wesbury, Chief Economist at First Trust Advisors, has referred to the US economy in 2013 as the ‘Plow Horse Economy’-one that ain’t gonna win the Kentucky Derby, but ain’t headin for the glue factory, either.”
For many, 2013 was a year of uncertainty and fear as the government shutdown and political debates raged on topics with financial ramifications like the debt ceiling, Fed tapering, and Obamacare. For Merrill, “these created a whole new set of worries, and if you get your economic news from TV, you expected Armageddon.”
Yet here came the steady plow horse and the economy gained strength, real GDP grew and the S&P 500 rose to all-time highs. “In the end, the entrepreneur came through with productivity enhancing innovation, in spite of having a bloated government on its back. The result was a Plow Horse economy,” Merrill commented.
So what about 2014? Merrill projects further gains for stocks in 2014. Merrill also anticipates “a continuation of the housing recovery, and the ‘re-leveraging’ of the American consumer. So, in 2014, the Plow Horse is likely to trot a little.”
2014 Outlook: A Plow Horse Ready to Trot
According to National Association of Realtors® (NAR), in order to have a fully recovered housing market and economic recovery, economists point to the need for four positive indicators:
1. A healthy job market with low stable unemployment;
2. Mortgage delinquencies that have returned to historical averages;
3. Home prices consistent with an affordable mortgage payment–to–income ratio; and
4. Home sales that are in the range of historical norms.
So, with Utah receiving numerous accolades, including Provo/Orem being named the #2 performing city in the US according to the Milken Institute’s 2013 rankings, have we met each of these criteria and can we expect a robust 2014?
The simple answer is yes. But let’s look at each of these points and break it down.
Utah’s Healthy Job Market
Utah’s unemployment dropped in December 2013 to only 4.1 percent, way ahead of the national 6.7 percent. Nine of the ten private sector industries posted job increases.
Governor Gary Herbert comments on our job market, saying, “every sector in our economy is growing again, except one. And I’m proud to say the sector that is not growing is state government.”
Utah’s secret sauce is more than our yummy Fry Sauce; in minutes you’re wading across streams or enjoying a trail in one of our majestic mountains. We have an energetic, educated, and skilled workforce. We are home to family-friendly businesses, elected officials, and charities that understand their role and serve us well. Utah is one of only 9 states which have an AAA bond rating from all three rating agencies (S&P’s, Moody’s, and Fitch).
For these reasons and many more, Utah was named #1 for business and careers by Forbes. Business Facilities Magazine named Utah #1 for healthy business climate. Money Magazine named 3 Utah cities among the top 50 in the U.S. to live. According to Forbes, Utah is #12 in Business Costs, #3 in Labor Supply, #11 in Economic Climate, #10 in Growth Prospects, and #17 in Quality of Life. Last but not least, because there are many more, the Corporation for National and Community Service ranks Utah #1.
Freddie Mac’s U.S. Economic and Housing Market Outlook for January shows mortgage delinquencies have fallen to 5.88 percent—nearly half of their peak. According to CoreLogic, mortgage delinquency rates here in Utah are even better and have decreased dramatically in recent months. Only 3.42 percent of loans in November 2013 were 90 days or more delinquent compared to 4.70 for the same time last year. Foreclosure rates also decreased along the Wasatch Front according to CoreLogic. Local foreclosure activity was lower than the national average of 2.18 percent.
Home Prices & Affordability Ratio
Home prices are on the rise but still have some room to grow without outpacing income growth, economists say.
In a report on home prices, Freddie Mac notes that “from 1999–2006, mortgage payments on a hypothetical 30-year fixed-rate mortgage would have increased by 50 percent more than income growth.” The report goes on to say that, “Currently, payment-to-income ratios are only 60 percent of the level we had in 1999, suggesting room for continued housing growth.”
Home sales have risen over the past two years but remain below levels from a nearly a decade ago. Home sales, historically, average a rate of about 6 percent of the housing stock every year. They dropped to 4 percent during the housing crisis. Economists are predicting a 5.7 percent pace in 2014.
“As we start 2014, the housing recovery continues its steady pace,” says Frank Nothaft, Freddie Mac’s chief economist. “House-price gains will likely moderate from last year’s pace but rise about 5 percent in national indexes. Home sales, as well as other key indicators, continue to trend in the right direction, although in some markets we are seeing the sales recovery strengthen while many others remain weak.”
Home sales that are in the range of historical norms
The picture of Utah County’s home sales is one to celebrate. Sales in December 2013 rose 3 percent to 468 units and sales for the entire year increased 11.5 percent. With more than 6,600 sales, 2013 is the strongest year since 2006. Price has also rebounded well and the median price in December reached $218,000—the strongest since August of 2007. If we have erased all the losses from what has been described as the worst recession since the great depression, then I’d say we have something to celebrate.
So it seems clear that Utah is off to the races. But we still have concerns that must be addressed. According to the Utah Economic Council, “Utah is just very well-positioned for an economic expansion, so most of the risk lies in what happens at the national level.”
According to Utah’s Chief Economist in the Governor’s Office of Management and Budget, Juliette Tennert, “we’re set up for a continuing, strengthening expansion. It’s all there. It’s just these national pressures are what I’m most worried about.”