💰📉🏠 Economic Downturn
📉 Prices dropped for the first time in over a year, 🏠 housing affordability worsened, 🇬🇧 UK's economy shrank, but 📉 recession may be avoided in 2023 according to the Congressional Budget Office.
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How has housing affordability worsened?
- Housing affordability has worsened due to several factors.
- Home prices soared after the pandemic began, as people moved out of cities quickly, remote work increased, and home construction slowed.
- Mortgage rates have spiked since March 2022 as the Federal Reserve raised interest rates.
- Affordability hit all-time lows in late 2023, with the average monthly mortgage payment in the U.S. doubling in the last three years.
- Black and Latino buyers have been disproportionately affected, with a lower percentage of affordable homes for their households compared to white buyers.
- However, there have been recent improvements in affordability.
- Mortgage rates have decreased, leading to slightly more affordable homes in recent months.
- The increase in supply due to more buyers putting their homes up for sale has put downward pressure on sale prices for older homes.
- Construction of new homes is on the rise, which should boost affordability to some extent.
- Interest rates and mortgage rates are expected to decrease further in the years ahead, although overall home prices are unlikely to return to their pre-pandemic levels.
What factors contributed to the UK's shrinking economy?
- Revised official data shows that the UK's economy shrank by 0.1% in the third quarter of this year, compared to an initial estimate of no change.
- Output in the dominant services sector fell by 0.2% in the third quarter, offsetting increases in construction and manufacturing.
- Consumer spending dropped by 0.5% in the same period, slightly more than initially estimated.
- Some analysts believe that the UK's high inflation and elevated borrowing costs are weighing down the economy and could be pushing it towards a recession.
- The impact of previous interest rate hikes has yet to fully feed through to the economy, with around 1.6 million fixed-rate mortgages due to end in 2024, potentially affecting households' disposable incomes.
Why is the recession expected to be avoided in 2023 according to the Congressional Budget Office?
- The Congressional Budget Office (CBO) predicts that the US economy will avoid a recession in 2023 and continue to grow, albeit at a slower pace.
- The CBO attributes the slower growth to weaker consumer spending and commercial construction.
- Unemployment is expected to increase slightly but remain at healthy levels, with the workforce growing moderately due to new immigrants.
- The CBO's projections show that the economy will be adding only 45,000 new jobs per month by the end of 2024, which is a concern for President Biden as voters cast their ballots.
- The softer labor market is expected to slow inflation, with the CBO projecting it to be at 2.1% in 2024, close to the Federal Reserve's target of 2%.
- Bloomberg economists had previously predicted a 100% probability of a recession in 2023, making the US economy's ability to avoid a recession remarkable.
- The US economy is currently experiencing real GDP growth of 2.5% in 2023, up from 0.7% in 2022.
- The CBO still anticipates some slowing, with real GDP growth at 0.8% in the current quarter and projected to be 1.3% in the first quarter of 2024 before rising to 1.7% by the end of 2024.
Who is reporting on this topic?
- Left focuses on unaffordability of homes in 2023
- Highlights recent decrease in prices after long period of increases
- Emphasizes shrinking UK economy, suggesting recession is imminent
- Center highlights first decrease in prices since 2020
- Mentions inflation is approaching Federal Reserve's target