Idaho Housing Market. Home prices continued to rise in June across the nation and in Idaho.
Idaho’s home prices increased 0.8 percent from May to June, and have risen 6.2 percent since June 2015. Nationally, home prices increased 1.1 percent month over month and 5.7 percent year over year. National home prices for single-family homes, including distressed sales, are forecasted to rise by 0.6 percent in July 2016, and by 5.3 percent by July 2017.
Although home prices remain 6.7 percent below peak values recorded in April 2006, the U.S. has experienced 53 consecutive months of year-over-year increases, including distressed sales, thereby indicating continued progress toward a full recovery. A new peak level in home prices is expected to be reached in November 2017. In Idaho, home prices are forecasted to increase 0.8 percent this month and 6.2 percent in the next year. The Idaho Division of Financial Management forecasts that housing starts will grow at a rate of 11.1 percent in the next year, compared with the national rate of 8.2 percent. In spite of a growing number of housing starts, inventories remain low compared to the number of homebuyers in Idaho, resulting in sustained housing price increases.
U.S. Short-Term Outlook. United States gross domestic product (GDP) increased approximately 1.2 percent during the second quarter of 2016 according to the advance estimate released by the Bureau of Economic Analysis in early August. While second-quarter growth was higher than the 0.8 percent first-quarter growth, it was still lower than many economists’ predictions of 2.6 percent. The information was released shortly after the European Union reported similar sluggish performance—an annual rise of 1.6-percent growth in the second quarter.
As in quarters past, consumer spending drove the increase in growth. Consumer spending increased at an impressive 4.2-percent rate, which was the fastest pace since the fourth quarter of 2014. Consumer spending makes up more than two-thirds of U.S. economic activity. While such a high growth rate in consumer spending is likely unsustainable long term, it is expected to continue through the rest of the year in connection with the improving labor market and rising house prices.
Slower-than-expected GDP growth occurred in part because inventories fell for the first time since 2011. On a positive note, lower second quarter inventories may contribute to greater output in quarters three and four as businesses and manufacturers re-stock. Business spending contracted for the third consecutive quarter, dampened by lower oil prices. Businesses may be more cautious with spending as a result of uncertain global demand and the upcoming U.S. presidential election. Government spending decreased in the second quarter after strong increases in the first quarter.
Despite GDP growth and a seemingly-healthy labor market, some economists remain concerned that growth continues forward at a relatively sluggish pace. There are several theories for why the economic bounce-back has moved forward slowly. Some say that there has been a decline in innovation, that spending is low, that too much regulation has hurt small businesses, or that companies are under-investing. Others say that government debt is bogging down the economy, or that changing demographics are shrinking the working class and straining social programs like Medicare. Regardless, the economy does continue to inch forward—slowly but steadily.
U.S. Long-Term Outlook. Economic growth worldwide continues to be sluggish, and U.S. growth is tied to the economies of its trade partners. Take Japan as a prime example. At the beginning of August, Japanese President Shinzo Abe introduced a massive new stimulus package to encourage spending. Japan’s government debt is currently larger than that of any other country when compared to the relative size of its economy. Output has been shrinking consistently, so the hope is that increased spending will make Japan financially more stable in the future.
The most recent stimulus involved an investment of 28 trillion yen ($274 billion) in social programs and infrastructure, including the construction of a high-speed magnetic levitation train between Tokyo and Osaka. The government expects the stimulus to increase gross domestic product by about 1.3 percent, but there has been no clear timetable for rolling it out or expecting the growth to occur. The stimulus assumes that Japanese citizens will spend more money and jumpstart the economy.
Consumer spending contributes a great deal to any economy, but if any exogenous shocks dampen that spending, it is possible that the newest stimulus package will once again yield a disappointing return on investment. As the American economy is heavily tied to the economic health of its trade partners, like Japan, global economies will continue to affect the long-term U.S. economic outlook.
Idaho Jobs. Idaho’s unemployment rate remained unchanged at 3.7% in June, and the national unemployment rate increased 0.2 percentage point to 4.9% in June.
Inflation. The U.S. Consumer Price Index increased 0.3% from May to June. Year over year, the index increased 1.0%, which is below the Federal Reserve’s target annual inflation pace of 2%.
Consumer Confidence. The U.S. Consumer Confidence Index® decreased 0.1 point to 97.3 in July. The Present Situation Index increased 1.7 points to 118.3, and the Expectations Index decreased 1.3 points to 83.3.