Home is where the heart is for this week's readings on the economy. Housing is at the center of most of the upcoming releases, which are jammed into four days instead of five because of the Presidents Day holiday.
What's on tap?
Here's what's coming up:
- The National Association of Home Builders releases its housing market index, Tuesday at 10 a.m. (all times Eastern).
- The Commerce Department reports on January housing starts/building permits, Wednesday at 8:30 a.m.
- The Labor Department reports on the January Consumer Price Index, Thursday at 8:30 a.m.
- The National Association of Realtors releases January existing-home sales, Friday at 10 a.m.
More of winter's chill?
Between construction that's put on ice and prospective buyers who don't want to look for homes when the driving is dicey, weather has shifted the economy into a lower gear. Since we've already passed the midway point of the first quarter, growth will be challenged for the first three months of the year, taken together.
We'll see whether the eventual emergence of spring helps the economy gain better traction. Jobs reports over the previous two months have been disappointing.
We can basically divide the week's housing reports into two similar themes:
- Construction on new homes.
- Sales of previously owned homes.
On the new construction side, builder sentiment has been on the rise over the past year, and the outlook is bullish.
David Crowe, the chief economist for the National Association of Home Builders, expects a rise in housing starts this year. "The trajectory is a continuing upswing. I have a pretty aggressive forecast for the year. I think the year for '14 will come in at 1.16 million total starts," he says. That's up from the recent rate of about 1 million starts per year.
Janet Yellen's smooth start
Congress seems satisfied with the new Fed chair. Americans who have never heard of her should be pleased as well.
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Mark Hamrick: From Bankrate.com, This is "Your Money This Week."
We connect the dots between what's happening in the world and your wallet.
I'm Mark Hamrick.
There's a new chair in charge of the Federal Reserve. Janet Yellen, who previously served as No. 2 at the nation's central bank, testified before members of Congress for the very first time as chair. And, the stock market rallied in reaction to her appearance.
How did she do? And what are the implications for the economy and your pocketbook? We chat with Bankrate chief analyst Greg McBride.
And Bankrate's Doug Whiteman takes a look at home renovation.
And as always, a look back at this week in business history.
All of that and more coming up on "Your Money, This Week."
Officially on the job for less than two weeks, Federal Reserve Chair Janet Yellen testified before a House panel this past week. She was quizzed about the economy and weak job reports, among other things.
We checked in with Bankrate Chief Analyst Greg McBride about how she did and what we've learned.
Greg McBride: Well, I think for a lot of people around the country, just everyday citizens, this was their first real look at Janet Yellen and the first time to really hear her speak in a public fashion and, in particular, in an extemporaneous way during the Q&A session. I think the most complementary thing you can say about a central banker, particularly somebody now just taking over the helm of the Fed, is how unremarkable the testimony really was, that there weren't any particular bombshells of revelations. She stuck very much to the script that not only the Fed has been putting out, but the Bernanke Fed has been putting out, really underlining the fact that there is going to be a tremendous continuity from the Bernanke Fed to the Janet Yellen Fed.
Mark Hamrick: And just to remind people out there a little bit, when the head of the Federal Reserve is going into a committee hearing that is chaired or held in the House of Representatives, in many ways that's hostile territory, because the Republicans aren't entirely happy with asset purchases that the Fed has been engaged in for a number years now, and there is an effort in the Congress to try to not only have more auditing, so to speak, of the Fed, but also to question many of the extraordinary measures the Fed has been engaged in.
So even though some of the Republicans are sharply critical of the Federal Reserve, did you feel like there was much tension when she was testifying, on the part of some of the questioners, and her reaction?
Greg McBride: I did not sense much in the way tension. There is the usual grandstanding by the politicians that are attempting to get their mug on the local news back in their home district, but from a tension standpoint, no. I think there was a lot of cordiality, really, on both sides: Janet Yellen, I think, extending the olive branch by saying from the outset, "I will stay all day if you want me to." Kind of offsetting, I think, some of that criticism in the past that Fed chairmen -- Greenspan, in particular -- were particularly opaque in what they said. I think Bernanke kind of took steps in that direction, to make the Fed more transparent and more understandable, and then I think, obviously, Janet Yellen is, at least from her initial appearance, taking that baton and running with it.
Mark Hamrick: We've seen some economic data over the past few months that has come in a little weaker than expected. That includes both of the past two reports on the job market. We have another report on the job market in early March, and it's worth mentioning there, because that actually comes before the next Federal Reserve policy-setting session. Chair Yellen said that she thinks that maybe some of the impacts of weather were affecting these job reports. I know that you have kind of certain expectations about where the Fed will be headed as this year proceeds, and you have had your own interest rate, for example, forecast. Has anything you have either heard from Janet Yellen or anything that you have seen in economic data led you to believe that anything is any different now?
Greg McBride: No not at all. I do think that this is going to be a year where the Fed does continually dial back their stimulus. From an economic standpoint, it's not going to be a straight line, in the sense that we tend to slow down usually in the first half of the year, each and every year. I don't expect 2014 to be any different. And so some of the soft economic data that we have seen here to start the year to me is not uncharacteristic at all, but rather very characteristic of what we have seen the past couple years. Janet Yellen, of course, responding to that saying she was surprised at how disappointing the past two employment reports were, but stressing that she is not going to overreact to it, and that they do get that March -- early March -- look at jobs for February before they have their March Fed meeting. Again, all, I think, very reassuring to markets. You want your Fed chairperson to be kind of a "Steady Eddie," if you will, not somebody who is going to knee-jerk-react, and I think Janet Yellen sent that message yesterday.
Mark Hamrick: One other message that she was very explicit about was that she said the Fed is monitoring the stress that's been seen in some emerging markets, and that was making itself known also in our own stock market and obviously, bond yields moving lower over a period of time. But after she spoke, as we know now, the stock market rallied rather strongly, and I suppose by some measure she must have walked away from there knowing that that was the reaction, thinking, "We succeeded there" -- right?
Greg McBride: Big sigh of relief, and I am sure, because this is a market that has been addicted to Fed stimulus. We saw a more than 30 percent run-up in 2013 with almost no volatility. Yes, we have seen volatility this year, but a strong rally on the heels of Janet Yellen's appearance, I think, is a reflection of the fact that markets are relieved that the stimulus is going to continue, this game plan of slowly dialing it back is going to continue, and that Janet Yellen is not looking at making any wholesale changes.
Mark Hamrick: So, you and I kind of live in this world to the extent that we pay a lot of attention to what Federal Reserve officials say, we pay attention to the economic data, and then we go outside of our little world every now and then, and we talk to either our family members or friends -- and Janet Yellen needs to speak to all those audiences, right? She needs to speak to the people on Wall Street, she needs to speak to the people on Main Street. As you were watching her, did you feel like she was an effective communicator?
Greg McBride: For the most part, yes. I mean, as far as a Fed chair goes or as far as a central banker goes, yes. I have long argued that the chair of the Federal Reserve is more significant to your pocketbook than the president of the United States, and yet everybody knows well in advance, two years in advance, when a presidential election is coming and how that is building up, and so forth.
My wife said to me last night, "Hey. What's this I hear about a new Fed chair?" And so, I think that it does kind of fly under the radar, but in terms of pocketbook issues -- The health of the economy? How is your 401(k) doing? What are the interest rates you are paying? What is your ability to be able to borrow and expand your business? -- those all revolve around the Fed and the work that they do, so yeah, that is very critical that the Fed chair speak directly to Main Street Americans about the steps they are taking and the outlook that they see going forward.
Mark Hamrick: And, to begin that hearing, it was referenced by one of the members of Congress that one of the results of Federal Reserve policy has been to keep savings rates at very low levels. And she did reference that in some of her comments, where she said, "We know that that's an issue," but she also said, for example, that even if people do not necessarily have their own 401(k), if the financial markets are doing well, ultimately that benefits just about everybody.
Greg McBride: Yeah, retirees -- and look, both of my parents are retired -- so look, retirees are not solely dependent upon interest income from their cash investment, or they should not be. You can garner income from a variety of sectors of your portfolio, and that's not even factoring in things like Social Security or a pension, if you have one.
So this low interest rate environment, which has prevailed for so long, I think that those that are overly dependent upon income from cash investments, they are long overdue for a relook at their portfolio and their sources of income, keeping in mind that dividend-paying stocks, real estate investment trusts and higher-quality bonds are also integral parts of a diversified portfolio, each of which kicks off income of their own.
Mark Hamrick: Well, the Federal Reserve will be meeting in mid-March, and I know we will be watching that very closely. Greg McBride, it is always great to catch up with you. Thank you.
Greg McBride: Thank you so much, Mark.
Mark Hamrick: Bankrate chief analyst Greg McBride. We spoke at Bankrate's headquarters in North Palm Beach, Florida.
Home renovations and additions. They can make home sweet home just a little bit sweeter. But which ones provide a real return on investment when it comes time to sell the house?
Bankrate's Doug Whiteman takes a look.
Doug Whiteman: Not every home renovation is worth the investment. When it's time to sell the house, some projects won't pay back the money that you put into them. I'm Doug Whiteman with your Bankrate.com Personal Finance Minute.
Remodeling a room into a fully-equipped home office costs thousands of dollars, and you'll be lucky to recoup half of that money at sale time, according to Remodeling magazine. A past president of the National Association of Realtors says simply that home offices don't sell houses.
A sunroom addition may offer more personal enjoyment than investment value. The return will vary, depending on the region of the country you live in.
A fancy, finished garage may not be cost-effective, although garage storage can be very appealing to a buyer.
And if you want an extra bathroom, putting a small addition on your house is not the best way to do it. The cost will go down substantially if the new loo is part of a larger addition.
For more on the worst home fixes for the money, visit Bankrate.com. I'm Doug Whiteman.
Mark Hamrick: Finally, our look at this week in business history...
February 19, 2008. That was when Toshiba threw in the technology towel on its HD-DVD format, surrendering a format war to Sony and Blu-ray technology. Of course, in the years since, digital downloads and streaming of movies have become increasingly popular, indicating that Blu-ray itself may not be able to keep going for many more years.
You've been listening to "Your Money, This Week."
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For more on this and other personal finance issues, visit Bankrate.com. And you can follow us on Twitter @bankrate, and I'm at @hamrickisms.
Thanks to producer Lucas Wysocki for his work in the studio.
I'm Mark Hamrick. From all of us here at Bankrate, here's hoping you have a great week.
New vs. not-so-new
What about the mix of new and existing home sales? Sales of previously owned homes have dominated more than usual since the financial crisis. That's been helped by the bargain prices of foreclosed homes.
Over the past few decades, new homes typically accounted for about 16 percent of all home sales, Crowe says. Now, new homes represent 8 percent of total sales, which he notes is about half the level where they should be.
But Crowe isn't expecting existing-home sales to show an increase in the upcoming report. What's holding them back? Ultimately, it involves home prices.
"There are still a few people underwater," he says. "I think there are still a fair number of people, while they are above water, they do not have enough equity to trade to the next home."
Darn you polar vortex!
The crazy winter weather has become the villain blamed for lackluster economic data.
Perhaps the biggest recent disappointment was word last week that retail sales fell 0.4 percent in January. Some of those sales will be made up when the weather warms, but meals at frozen-out restaurants are mostly lost forever.
Writing on her blog, economist Diane Swonk with Mesirow Financial said, "We need to start assessing how much of what was lost can be fully recouped, given the seemingly relentless nature of weather disruptions this winter."
Or, in the words of Jack Kleinhenz, the chief economist for the National Retail Federation: "No one can jump to any solid conclusion until we shovel out of the snow.”
This week in business history
Feb. 19, 2008, was the date of a DVD war surrender. That was when Toshiba threw in the proverbial towel on its HD-DVD format. It surrendered in the format war to Sony, which prevailed with Blu-ray technology.
Digital downloads and streaming of movies have since become increasingly popular. That raises the question of how much longer Blu-ray itself will be able to keep going.
What do you think? Are DVDs headed for the home entertainment scrap heap?
Follow me on Twitter: @Hamrickisms.