May 25, 2021 – How Bad Will the Deficit Get? The pandemic hit and reduced the government’s income.

Economic Commentary

How Bad Will the Deficit Get? To describe what a deficit is, let us look at someone’s family budget. Let’s say the family is taking in $5,000 per month and they are spending $5,000 per month. That means there is no savings each month. And we will also assume that $1,000 goes to pay off debts. There is no deficit either. Now let’s say the income is reduced to $3,000 per month and they are still spending $5,000 per month.

But because of the monthly “deficit,” the family must borrow some more. So, the loan increases their debt to $2,000 per month and therefore the deficit is now $3,000 per month. Before long, the family will go broke. Now our government is experiencing the same phenomenon, without going broke. The pandemic hit and reduced the government’s income. At the same time, we had to spend more to help those in need. Thus, the deficit widened significantly.

Only the government has unlimited borrowing power (when Congress allows), so we keep going in the hole. What will stop us from digging a larger hole? Our income must rise as the economy recovers, and this will lessen our need to spend. But like the family, we still will have to pay on the debt we ran up. And if we borrow too much, this could raise interest rates, which will increase the cost of that debt. The bottom line? The quicker we recover, the better off we will be, but we will be paying for a long, long time.

Weekly Interest Rate Overview

The Markets. Rates increased for the first time in several weeks, bolstered by fears that the Fed will taper their purchases of mortgages and bonds. For the week ending May 20, Freddie Mac announced that 30-year fixed rates increased to 3.00% from 2.94% the week before. The average for 15-year loans rose to 2.29% and the average for five-year ARMs remained at 2.59%. A year ago, 30-year fixed rates averaged 3.24%, 0.24% higher than today. Attributed to Sam Khater, Chief Economist, Freddie Mac – “After a run up over the first few months of the year, rates have paused and hovered around three percent since March. Despite this favorable rate climate, there remains a shortage of homes for sale. The lack of housing supply has been compounded by labor disruptions and expensive building materials that are driving up the cost of new housing, making it difficult for homebuyers to find homes to purchase.”  Note: Rates indicated do not include fees and points and are provided for evidence of trends only. They should not be used for comparison purposes.

Real Estate News

Homes that are listed on a Tuesday, Wednesday, or Thursday tend to sell for $1,700 more than homes listed on the weekend—in some markets that could be even thousands of dollars more. These middle-of-the-week listed homes also sell nearly two days faster, according to new research from the real estate brokerage Redfin, which tracked home sales data from July 2020 to February 2021 nationwide. “Because the market is so competitive right now, most homes will receive plenty of attention regardless of when they’re listed,” says Daryl Fairweather, Redfin’s chief economist. “But sellers can still maximize their potential profit simply by listing in the middle of the week, which gives potential buyers a few days to see the home, talk to their agent, and set up a showing for Saturday or Sunday.” Regardless, to have the most selling success, price the home appropriately from the start—which includes not underpricing the home. “If the home is priced too high, fewer buyers will see the home, but if it’s priced too low, the seller may be inundated with so many tour requests a serious buyer could give up before laying eyes on it,” Fairweather says. “The goal is to get as many serious buyers as possible to tour your home, make offers, and drive up the sales price.” Source: realtor.com®

Among people most likely to move in the next three months, most are in their 30s and have more in savings and assets than the national average according to a quarterly study by Audience Town (AT), a real estate, moving, and home-centric advertising platform. AT accrued the data as part of its Q2 Mover Report, which identifies likely movers as determined by millions of data points including life events and public records. Among other trends, the report notes that likely movers live in a home worth $300,000 or more and that experts and researchers expect young couples to move in far greater numbers than their elders. “People move because of life events, and the Covid-19 pandemic has been the single most significant life event many of us have ever lived through,” said Ed Carey, CEO of Audience Town. “People are moving in huge numbers, and it’s going to be a massive year for residential real estate. Our most recent data shows that likely movers are younger and more affluent than the nation as a whole, which is going to redefine the national landscape.” Among the other characteristics of likely movers from the report, AT found that 11.7 million Americans are anticipated to move in Q2, 2021 and 17.5% are business owners, making business owners 59% more likely to move than the general population baseline. Source: MReport

CoreLogic, Irvine, Calif., reported its monthly Home Price index recorded an 11.3% annual gain in March, the highest rate since March 2006. The report said on a month-over-month basis, home prices increased by 2% compared to February. The CoreLogic Home Price Forecast projects home prices to increase 3.5% by March 2022, as intensifying affordability challenges narrow the pool of potential buyers and are likely to drive a slowdown in home price growth. CoreLogic Chief Economist Frank Nothaft said as consumer confidence rebounds and the job market picks back up, the spring homebuying season is on track to outpace trends seen in 2019 and 2018. The report said Millennials led the homebuying charge with older millennials seeking move-up purchases and younger millennials entering peak homebuying years. “Lower-priced homes are in big demand and short supply, driving up prices faster compared to their more expensive counterparts,” Nothaft said. “First-time buyers seeking a starter home priced 25% or more below the local-area median saw prices jump 15.1% during the past year, compared with the overall 11.3% gain in our national index.” Source: The Mortgage Bankers Association