Tag Archives: housing market

“A Rough Decade Ahead” – ‘Math’ & The Future Of The US Housing Market

Authored by Chris Hamilton via Econimica blog,

Summary

  • New Housing is being Created at an Unprecedented 2.5x’s the pace of the Growth of the 15 to 64yr/old Population
  • Total Annual Population Growth Has Slowed 25% from Peak Growth, 2 Decades Ago
  • However, Annual Population Growth Among 15 to 64yr/olds Has Slowed Over 80% From Peak Growth & Will Continue Decelerating Through 2030
  • 15 to 64yr/olds Do Nearly all the Net Home Buying, 65+yr/olds Net Home Selling
    • 15 to 64yr/olds Have a 70% Labor Force Participation Rate vs. 27% for 65-74yr/olds, just 8% for 75+yr/olds
    • 15 to 64yr/olds Earn and Spend Double that of 65-74yr/olds & triple that of 75+yr/olds
    • 65+yr/olds Have Highest Home ownership Rate at 78% vs. Just 36% for Group with Lowest Rate, 15 to 34yr/olds
    • 15-64yr/olds are Credit Willing Relative to Credit Averse 65+yr/olds

I read an article a few days ago that got me thinking.  The article’s author claimed,

“At 5% mortgage rates and with today’s level of affordability, history shows that there is nothing in the way from having a home building boom over the next ten years to satisfy this demographic demand.”

I found the claim contrary to everything I think I know, so I thought I’d lay out the counter argument.

The chart below shows annual growth of the 15+yr/old US population (blue columns) vs. the annual growth of the 15 to 64yr/old population (red balls).  The 15+yr/old annual population growth has fallen 25% (decline of a half million annually) since the 1998 peak but more significantly, the 15 to 64yr/old annual population growth has fallen over 80% (decline of 1.8 million/yr) due to a combination of lower immigration rates and lower birth rates.

https://www.zerohedge.com/sites/default/files/inline-images/40246456-1540573727993815.png?itok=TOw6SAp-

These population growth trends will only continue to slow through 2030, according to UN and Census estimates (not really estimates, since this population is already born and simply advancing into adulthood).  The future estimates for 15 to 64yr/old population growth (presented above) include estimated immigration well above present rates.  Most, if not all (net) of the assumed 15 to 64yr/old minimal population growth is premised on ongoing immigration that continues slowing.  Thus the forward looking 15 to 64yr/old growth estimates are likely to be lower and perhaps even turning to outright annual declines.

The chart below shows average income, spending, and LFP (labor force participation) rates by age segment.  No shocker, those actively working make and spend more than those with low rates of employment.  Those who have worked longer earn more than those new to the labor force.  Elderly expenditures come into very close alignment with their (generally) fixed incomes.

https://www.zerohedge.com/sites/default/files/inline-images/40246456-15405775019409947.png?itok=pGk1ZXnO

Noteworthy is that 75+yr/olds have only an 8% LFP rate but will make up over half of the total 65+yr/old population growth through 2030.  The next largest growth segment is among 70 to 74yr/olds with a 19% LFP rate, and the smallest increase is among the 65 to 69yr/olds with a 32% LFP.   As an aside, 65+ year olds have the highest home ownership rates at 78% vs. 36% for those aged 15 to 34. So while the more affluent portion (5% to 20%?) of 65+yr/olds may be interested in a second home in the desert, the mountains, or beach…the majority already own and are eventually looking to downsize.  Simply stated, nearly all the coming growth is among those that work the least, earn the least, spend the least, already own homes, and are more likely to downsize than buy a second home.

https://www.zerohedge.com/sites/default/files/inline-images/40246456-15405820325401883.png?itok=tYwxN_9R

Putting it all together (chart below), annual 15+yr/old total population growth (blue columns), 15 to 64yr/old population growth (red line), housing starts (yellow line), and federal funds rate (black line).  Given it is the 15 to 64yr/old population that does the net home buying, (and growth among them continues decelerating…coupled with rising rates and elevated valuations versus most population growth among 75+yr/olds who are more likely to sell via downsizing and/or willing properties to their heirs) I contend the US is creating too many homes presently, not too few.  Of course, this doesn’t even factor in things like the lack of income growth among the vast majority those working, high student debt loads, slowing household formation, continued delayed family formation and the lowest birth rates in US history which were just recorded in the first quarter of 2018 (according to CDC…HERE), etc. etc.

https://www.zerohedge.com/sites/default/files/inline-images/40246456-15405930794152036.png?itok=DjqawWsJ

Contrary to the author of the article that inspired me, I contend that housing is in for another very rough decade (at the very least)… likely worse than the period during the GFC.  The math is pretty straightforward on this one.

Source: ZeroHedge

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Home Price Growth Slows Most Since 2011 As Case-Shiller Rolls Over

Amid the collapse on US home sales, as mortgage rates surge above 5.00%, August’s Case-Shiller home price data plunged to its weakest annual growth since Dec 2016, dramatically missing expectations).

Against expectations of a 5.80% YoY rise, August home prices rose 5.49% (slowing from July’s 5.90% YoY) to its weakest since Dec 2016…

https://www.zerohedge.com/sites/default/files/inline-images/2018-10-30_6-02-10.jpg?itok=N0TP2Lt_

This is the biggest two-month slowdown in Case-Shiller home price growth since 2014…

https://www.zerohedge.com/sites/default/files/inline-images/2018-10-30.png?itok=k6MAWHOy

On a non-seasonally-adjusted basis, home prices rose 5.77%, down from 5.99%, the lowest since June 2017.

And judging by mortgage rates, it’s about to get a whole lot worse…

https://www.zerohedge.com/sites/default/files/inline-images/2018-10-30_6-12-59.jpg?itok=8UhvPbfH

Of course, the establishment is saying this is “contained”:

“Following reports that home sales are flat to down, price gains are beginning to moderate,” David Blitzer, chairman of the S&P index committee, said in a statement. “There are no signs that the current weakness will become a repeat of the crisis, however.”

Las Vegas had the biggest annual increase at 13.9 percent, followed by San Francisco at 10.6 percent and Seattle at 9.6 percent,

https://www.zerohedge.com/sites/default/files/inline-images/2018-10-30%20%281%29.png?itok=vPBTu7Dq

But Seattle’s price appreciation slumped MoM…the biggest drop since Feb 2011…

https://www.zerohedge.com/sites/default/files/inline-images/2018-10-30_6-23-32.jpg?itok=bTwOj3sb

Is it any surprise that home builder stocks have collapsed along with US housing data?

https://www.zerohedge.com/sites/default/files/inline-images/2018-10-30_5-58-59.jpg?itok=U2x9OqyF

Source: ZeroHedge

September YoY Home Sales Down 13.2%, Median Price Down 3.5%, S&P Down 6.5% From High

New Home Sales (SAAR) in September plunged to their lowest since Dec 2016, crashing 5.5% MoM (and revised dramatically lower in August)… Maybe Trump has a point on Fed rate hikes?

Remember this is the first month that takes the impact of the latest big spike in rates – not good!

This is a disastrous print:

August’s 629k SAAR was revised drastically lower to 585k and September printed 553k (SAAR) massively missing expectations of 625k (SAAR) – plunging to the weakest since Dec 2016…

https://www.zerohedge.com/sites/default/files/inline-images/2018-10-24_7-02-08.jpg?itok=o2oEP3n7

That is a 13.2% collapse YoY – the biggest drop since May 2011

https://www.zerohedge.com/sites/default/files/inline-images/2018-10-24.png?itok=mO5y0zJX

The median sales price decreased 3.5% YoY to $320,000…

https://www.zerohedge.com/sites/default/files/inline-images/2018-10-24%20%281%29.png?itok=hgp-Zkpa

New homes sales were down across all regions … except the midwest.

https://confoundedinterestnet.files.wordpress.com/2018/10/nhstable.png?w=621&h=447Source: Confounded Interest

As the supply of homes at current sales rate rose to 7.1 months, the highest since March 2011, from 6.5 months.

https://www.zerohedge.com/sites/default/files/inline-images/2018-10-24%20%282%29.png?itok=kft0a499

The decline in purchases was led by a 40.6 percent plunge in the Northeast to the lowest level since April 2015 and 12 percent drop in the West.

Source: ZeroHedge


70% Of S&P 500 Stocks Are Already In A Correction

Spooked by fears about peak profits, the slowing Chinese economy, Trump’s tariffs, ongoing political turmoil in the UK and Italy, and ongoing jitters among systematic, vol-targeting funds, on Tuesday the S&P tumbled as much as 2.34% in early trade – a drop which almost wiped out all gains for the year – before paring losses and closing only -0.55% lower. The drop pushed the S&P’s decline from its September highs to 6.5%, two-thirds on the way to a technical correction.

https://www.zerohedge.com/sites/default/files/inline-images/S%26P%20from%20highs.jpg?itok=qhSNB0d4

However the relatively stability at the index level has masked turmoil among individual names where some 1,256 stocks hit 52-week lows, while only 21 establishing new highs.

https://www.zerohedge.com/sites/default/files/inline-images/Blood%20on%20Wall%20St.PNG?itok=Om2dtkhx

More concerning, and a testament to the tech-heavy leadership of the market concentrated amid just a handful of stocks, is that while the broader S&P 500 index has yet to enter a correction, more than three quarters of all S&P stocks – or 353 – have already fallen more than 10% from their highs. Worse, of those, more than half 179 have already fallen by 20% or more from their highs, entering a bear market.

https://www.zerohedge.com/sites/default/files/inline-images/stocks%20reuters%201.PNG?itok=5eZQDzEv

The reason why the broader index has so far avoided a similar fate is because Apple, whose $1 trillion market value makes it by far the most heavily weighted stock within the S&P 500, has fallen only 4.6% from its October 3 record high. That has helped the S&P 500 itself stay out of correction territory.

Broken down by sector, the S&P 500 materials index – the closest proxy of Chinese economic growth – has fared the worst in October, leaving it down 19% from its 52-week highs, with the utilities index is the outperformer, down just 5 percent.

https://www.zerohedge.com/sites/default/files/inline-images/Sectors%20vs%2052-week%20highs.PNG?itok=N1dR9Xc5

At the individual level, among the bottom 10 S&P 500 performers, are names likes Wynn Resorts and Western Digital, both highly exposed to China. Nektar Therapeutics and Newell Brands are also among the S&P 500’s worst performers.

https://www.zerohedge.com/sites/default/files/inline-images/Stocks%20furthest%20from%20highs.PNG?itok=t0do72Y-

Taking a step back, despite its relative resilience, the S&P 500 is still on track for its worst month since August 2015, while most global equities are down for the year. North America is still the best performing region with 67% of the six countries having benchmark equities trading higher on the year in US dollar terms, according to Deutsche Bank. In EMEA, only 23% of countries are up, and only 6% of countries in the European Union (in USD). In South American (6 countries) and Asia (18), not a single country has a positive return in USD terms this year.

One day later, and despite widespread call for an imminent market bounce, traders remain completely ambivalent as today’s market cash open action shows:

  • Half of S&P 500 stocks rising, half falling
  • 5 of 11 S&P 500 groups rising, 6 falling
  • 15 DJIA stocks rising, 15 falling

Meanwhile, the Nasdaq has a more negative tone with decliners outpacing advancers. In other words, as Bloomberg’s Andrew Cinko writes, “there’s no follow through on either the upside or the downside after yesterday’s epic rebound. At this moment, he who hesitates isn’t lost, in fact, he’s got a lot of company as stock market pundits engage in verbal duel over where we go from here.”

Source: ZeroHedge

“The Slowing Is Widespread” – US Home Price Growth Slowest In 11 Months

The US housing market just took another hit as Case-Shiller reported that home prices (in July) rose at the slowest pace since August last year, missing expectations notably.

20-city property values index increased 5.9% y/y (est. 6.2%), least since Aug. 2017, after rising revised 6.4%.

https://www.zerohedge.com/sites/default/files/inline-images/2018-09-25_6-03-31.jpg?itok=oDRV8-Da

This was the biggest miss since May 2016

https://www.zerohedge.com/sites/default/files/inline-images/2018-09-25_6-04-43.jpg?itok=D_N-X8k-

July marked the fourth consecutive month that annual price gains in the 20-city index decelerated. That’s in sync with other reports indicating housing is stalling as buyers shy away from higher prices amid mortgage rates near the highest since 2011, in addition to a lack of choice among affordable properties. At the same time, steady hiring and elevated confidence are supporting demand.

“Rising homes prices are beginning to catch up with housing,” says David M. Blitzer, Managing Director and Chairman of the Index Committee at S&P Dow Jones Indices.

“The slowing is widespread: 15 of 20 cities saw smaller monthly increases in July 2018 than in July 2017. “

But despite slowing home price appreciation, all cities saw prices rise faster than income growth.

https://www.zerohedge.com/sites/default/files/inline-images/2018-09-25.png?itok=DX3wlGy9

Sales of existing single family homes have dropped each month for the last six months and are now at the level of July 2016. Housing starts rose in August due to strong gains in multifamily construction. The index of housing affordability has worsened substantially since the start of the year. 

This really should not be a huge surprise given the collapse in US housing macro data and home builder stocks…

https://confoundedinterestnet.files.wordpress.com/2018/09/homebldgsp.png?w=622&h=448US home building companies relative to the S&P 500 index has been falling since 2017.

https://confoundedinterestnet.files.wordpress.com/2018/09/timber.png?w=622&h=448Lumber futures, a harbinger for housing, are down solidly on the year amid weaker demand.

Probably time for some more rate-hikes…

Source: ZeroHedge

International Buyers Are Dropping Out Of US Housing

  • The dollar volume of U.S. home sales to international buyers between April 2017 to March 2018 dropped 21 percent compared with the previous 12-month period, according to the National Association of Realtors.
  • Buyers from China, Canada, India, Mexico and the United Kingdom accounted for nearly half of the dollar volume of sales to international buyers.
  • Sales to Canadian buyers fell by 45 percent.

After strong interest for several years, international buyers appear to be souring on the U.S. housing market.

The dollar volume of U.S. home sales to international buyers between April 2017 and March 2018 dropped 21 percent compared with the year-ago period, according to the National Association of Realtors.

Of the $121 billion in sales to international buyers, those currently living in the U.S purchased $67.9 billion in properties, while nonresident foreigners purchased $53 billion, both marking a drop from the previous year. Foreign buyers accounted for 8 percent of the $1.6 trillion in existing home sales, a drop from 10 percent the previous year.

While high home prices and inventory shortages are clearly playing some role in the drop. Competition from domestic buyers, whose demand is increasing sharply, may also be a deterrent. And the current political climate in the U.S. also should not be overlooked.

“The decline is partly coming off high levels of the prior year, but also surely from the strong rhetoric coming out of Washington against foreigners,” said Lawrence Yun, chief economist for the Realtors. “There has been a large drop-off in foreign students attending U.S. universities already. Chinese [buyers], in particular, purchase homes for their kids while attending college.”

China still leads the pack for international buyers, as it has for six straight years, accounting for 15 percent of international sales. Chinese buyers also purchased the most expensive homes, with a median price of $439,100.

Canada came in second, with a 10 percent share of international sales, but the Canadians’ dollar volume dropped by 45 percent compared to the previous year. Not only are Canadians buying fewer U.S. properties, they are buying cheaper U.S. properties. The median price for Canadian buyers was $292,000.

“The market here is softer, and I imagine that’s why there are perhaps less Canadian buyers,” said Elli Davis, a real estate agent based in Toronto. “That does surprise me, though, as I still know lots of people buying mostly in Florida!”

Buyers from China, Canada, India, Mexico and the United Kingdom accounted for nearly half of the dollar volume of sales to international buyers. Canadian buyers had been the market leaders by far during the U.S. recession. They dropped back significantly as U.S. home prices recovered, Chinese buying increased and U.S. investor purchases climbed.

“Inventory shortages continue to drive up prices and sustained job creation and historically low interest rates mean that foreign buyers are now competing with domestic residents for the same, limited supply of homes,” Yun said.

High prices could certainly be a deterrent for buyers in Southern California. Chinese buyers have been very strong in the single-family market there, as they plan for their children to attend area universities. Irvine, especially, saw huge demand from Chinese buyers, particularly in newly built communities, with larger, multi-generational homes that they favor.

For international investors who are looking for condominiums in large cities as an investment, the supply theory doesn’t really hold.

“I don’t think it’s the supply issue because these buyers are buying in the higher end and there is more supply there, particularly in the gateway cities like Miami and New York,” said Sam Khater, chief economist at Freddie Mac. “It could be just that their appetite for U.S. real estate is waning.”

Source: by Diana Olick | CNBC

Rents Surge Most in 16 Months Pressuring Home Buyer Wannabees

https://imageproxy.themaven.net/https%3A%2F%2Fs3-us-west-2.amazonaws.com%2Fmaven-user-photos%2Fmishtalk%2Feconomics%2FzmfATcSa4EegwR7v_znq6Q%2FtEhb_tdHRkSUHoRNDN7lJQ?w=1026&q=75&h=613&auto=format&fit=crop

Rents in all unit sizes picked up steam in April. Among the largest cities, Las Vegas, Denver, and Detroit led the pack.

The Rent Cafe’s Monthly Rent Report for the 250 largest US cities shows a 3.2% Y-o-Y surge.

The national average rent in April clocked in at $1,377. This marks the highest annual growth rate since the end of 2016.

By Size

  • Large cities: Las Vegas sees the fastest increasing rents Y-o-Y (6.0%), followed by Denver (5.8%) and Detroit (5.4%). Apartment prices in Brooklyn and Manhattan continue to slide, while rents in Washington, D.C., Portland, and Austin have been steady, growing by less than 1.5%.
  • Mid-size cities: Rents in Sacramento cooled down to 6%, but still lead. At the other end of the spectrum are New Orleans (-2.2%), Tulsa (0.5%), and Wichita (1.0%), where rents are growing the slowest.
  • Small cities see the top 20 most significant rent increases in April. Rents in the Midland-Odessa area skyrocketed for another month, 35.6% and 32.6% respectively. At the bottom of the list sit Norman (-2.5%), Lubbock (-2.5%), and Alexandria (-1.1%).
  • No significant fluctuation in prices was noticed in Chicago, Philadelphia, and San Francisco, where apartment rents grew slower than 2% over the year.

Significant Changes

https://s3-us-west-2.amazonaws.com/maven-user-photos/mishtalk/economics/zmfATcSa4EegwR7v_znq6Q/0_9elPE2DEuihUeWZQpWVQ

Wages Aren’t Keeping Up

https://s3-us-west-2.amazonaws.com/maven-user-photos/mishtalk/economics/zmfATcSa4EegwR7v_znq6Q/qbEl37YkUkuAI53DOR_7Qw

The above chart was released today by the BLS. For details, please see Jobs Report: Payroll Miss +164K, Nonfarm Wage Growth Anemic +0.1%.

BLS in Agreement

https://s3-us-west-2.amazonaws.com/maven-user-photos/mishtalk/economics/zmfATcSa4EegwR7v_znq6Q/P3HEGwY59UC2sEGNI5ZXcw

The BLS also has rent of primary residence up 3.6% (from March).

Median New Home Sales Price

https://s3-us-west-2.amazonaws.com/maven-user-photos/mishtalk/economics/zmfATcSa4EegwR7v_znq6Q/O6_SKcZFJkaUO9Xb1Si-vA

Median Real Wages

https://s3-us-west-2.amazonaws.com/maven-user-photos/mishtalk/economics/zmfATcSa4EegwR7v_znq6Q/g9hZt52t7EuS2OyPBbIuvg

Home Buyer Wannabee Dilemma

Home buyer wannabees struggle with rents but cannot afford houses.

The most recent data for median wages is from May of 2016. May of 2017 will be out soon and I will update the chart.

New buyers struggle with rent but home buying is not an option.

Real median wages are down seven of the last 11 years while home prices (not even reflected in the CPI), have soared.

How the Fed’s Inflation Policies Crucify Workers in Pictures

Deflationary Bust Coming

The current setup leads to another deflationary collapse as we saw in 2008-2009, not an inflation boom.

If I were trying to create a deflationary bust, I would do exact exactly what the world’s central bankers have been doing the last six years,” said Stanley Druckenmiller, 2018 recipient of the Alexander Hamilton award.

That is precisely what I have been saying for a long time.

For an explanation of the coming deflationary collapse, please see Can We Please Try Capitalism? Just Once?

“The Home Price Surge Continues” – Case-Shiller Jumps Most In 4 Years, All Cities Up

US housing data has been disappointing so far in 2018 as affordability plummets on the heels of rising rates, but that didn’t stop Case-Shiller Home Prices from surging at a faster-than-expected 6.4% YoY in January.

Home sales, permits, and starts have been underwhelming so far this year…

https://www.zerohedge.com/sites/default/files/inline-images/2018-03-27_6-00-51.jpg?itok=hJEA_BQD

But according to Case-Shiller, home prices are accelerating at their fastest rate since July 2014 (up 6.4% YoY vs 6.15% YoY exp)…

https://www.zerohedge.com/sites/default/files/inline-images/2018-03-27_6-04-01.jpg?itok=CwNDTnyw

All 20 cities in the index showed year-over-year gains, led by a 12.9 percent increase in Seattle and an 11.1 percent gain in Las Vegas.

After seasonal adjustment, Seattle, San Francisco and Atlanta had the biggest month-over-month gains.

Washington has the smallest month-over-month advance at 0.2 percent.

“The home price surge continues,” David Blitzer, chairman of the S&P index committee, said in a statement.

“Two factors supporting price increases are the low inventory of homes for sale and the low vacancy rate among owner-occupied housing.”

The 20-City Home price index is less than 1% away from the record highs of 2006…

https://www.zerohedge.com/sites/default/files/inline-images/2018-03-27_6-08-12.jpg?itok=OdI_L1eX

But the National home price index is over 6% above 2006 highs…

https://www.zerohedge.com/sites/default/files/inline-images/2018-03-27_6-11-29.jpg?itok=EKZRcnk1

Source: ZeroHedge