Discussing slowing growth in the rental market, several reports on affordability and how affordable homes are today, a very encouraging economic prediction for 2018 plus much more!
Is Unprecedented Growth in Rental Housing Market Ending?
We’re finally seeing the record growth in renters slow down, but while the market has responded to rental housing needs for higher-income households, there are alarming trends that suggest a growing inability to supply housing that is affordable for middle- and working-class renters, let alone those with very low incomes.
Addressing these challenges will require bold leadership and hard choices from both the public and private sector.
Despite rising incomes, nearly half (47 percent) of all renter households (21 million) are cost burdened—meaning they pay more than 30 percent of their income for housing, including 11 million households paying more than 50 percent of their income for housing.
Addressing these challenges—particularly expanding the availability of low- and moderate-cost housing options—will require that all levels of government ensure that the regulatory environment does not stifle innovation, and that tax policy and public spending support the efficient provision of moderately-priced housing.
We are closing in on one year with a new administration and yet we still have not seen much done to address affordable housing. I thought Ben Carson at HUD would work on this issue but I guess it is just going to be more of the same old same old from this administration…
The study found that the number of renter households declined slightly in 2017 but is 25% higher than back in 2006. Combining rents that are rising faster than inflation and very slow income growth means we have a serious problem in housing!
Economy to Keep Growing in 2018
Barring a zombie apocalypse or a sudden spontaneous collapse in asset prices, the current Goldilocks environment of synchronized, above-trend global economic growth and low but gently rising inflation will likely persist in 2018.
Excellent but what about the good old USA? They said:
Factoring in larger-than-expected tax cuts and higher federal spending, we now look for above-trend real GDP growth of around 2.5% in 2018. We expect household and corporate tax cuts to boost growth by 0.2 to 0.3 percentage points in 2018. Another 0.2 percentage points will come from higher government spending that reflects hurricane-related disaster relief appropriations and a likely rise in discretionary spending limits as part of an expected government funding compromise.
With the unemployment rate likely to drop below 4%, we expect some upward pressure on wage growth and consumer price inflation, with core CPI inflation rising above 2% in the course of the year. Core PCE inflation, the Fed’s preferred measure, should rise as well, to 1.7% from 1.4% currently, making some limited progress toward the 2% objective.
Under the new leadership, the Fed is likely to continue to push the fed funds rate gradually higher as slack in the economy erodes. The current median Fed projection for three rate hikes in 2018 – one more than markets now price in – looks like a reasonable baseline assumption, with roughly equal risks on both sides. If financial and economic conditions remain favorable throughout the year, four rate hikes are entirely possible. Conversely, an abrupt tightening of financial conditions and/or further downside surprises on inflation could slow the pace of rate hikes to only two in 2018.
If they are correct about wage growth it could turn out to be a decent year for the average American. Well other than the threat of a zombie apocalypse…
Navajos Sue Wells Fargo
The Navajo Nation on Tuesday filed a federal lawsuit against Wells Fargo alleging the nationwide bank used “predatory and unlawful practices” to rip off tribal members, with damages estimated at more than $50 million.
The U.S. District Court case filed in New Mexico says Wells Fargo employees routinely duped customers into opening unnecessary accounts, then set up debit or credit cards without consent and collected unauthorized fees.
“Wells Fargo’s targeted exploitation of the most vulnerable Navajo communities reflects an even darker and more insidious side to Wells Fargo profiteering schemes than have been unearthed to date,” said John Hueston, an attorney representing the tribe. “Wells Fargo deceived the Navajo people and lied to the Navajo government causing substantial suffering to those who trusted the bank, causing substantial suffering to those who trusted the bank.”
When I first heard about this, I thought the Navajo were suing Wells Fargo for the same exact thing they had done to many others. But it appears Wells Fargo is being accused of far more reprehensible behavior.
It is a shame that the CFPB is no longer in the consumer protection business…
Time to Become Concerned About Housing Affordability?
It isn’t just renters that are facing affordability issues. Home buyers could also face affordability issues in many areas of the country. Especially if we see mortgage rates start to increase as predicted…
Consider this snippet from the latest Nationwide Health of Housing Report:
Rapid home appreciation continues to weaken the near-term outlook for the U.S. housing market. The overall ranking remains positive, however, as job and income gains spur stronger demand for single-family housing.
While many local housing markets are at all-time highs with respect to home values, about a quarter of MSAs remain below prior price peaks. This suggests a higher share of homeowners that are underwater on their mortgages, a drag on future housing market growth.
Affordability concerns are climbing as national house price gains continue to run at a pace well above both the long-term average and income growth. Household formations have helped to offset some of the negative price impacts, however, supporting the outlook for housing demand. The backdrop for housing sector health remains positive with solid job gains, rising incomes, and a healthy mortgage market.
Remember, you must define what is affordable and decide what is best for you. Mortgage rates are still super low compared to the past. Home prices are rising and mortgage rates are once again predicted to rise.
If you have decided that buying a home makes sense, then my advice is to NOT waste any time. It may cost you more to buy a home if you dilly dally…
Erosion of Housing Affordability Likely to Spread
According to CoreLogic’s latest Market Pulse, we can look forward to more affordability issues in 2018. They are saying the projected rise in interest rates, increasing home prices and the low inventory of homes ( particularly starter homes ) will have a negative effect on affordability.
They reported that starter home prices are growing faster than other homes. This really hurts first time home buyers. I must once again point out that properly prepared and professionally represented buyers have no reason to fear this issue.
They are predicting that interest rates will rise to .5 to 1 percentage point, home prices will increase 5% and the inventory of homes for sale will remain tight. Something to think about if you are looking to buy a home…
Are Homes Affordable Today?
You may be thinking that homes are not very affordable today. Which is pretty understandable if you read the previous reports talking about affordability getting worse.
The truth is that homes can be very affordable today! In fact, homes are more affordbale today than they have been in the past.
If we look at affordability in the years after the housing market imploded, it does look like homes are not very affordable. But you have to remember that there was a boat load of foreclosures that distorted the statistics.
Check out this chart using data from the National Association of Realtors’ Housing Affordability Index:
The higher the graph, the more affordable homes are. You can see that homes are more affordable today than before the housing market crash.
CoreLogic just posted an article with the National Homebuyers’ Typical Mortgage Payment. While it does not reflect what might be acceptable, affordable, possible, logical or sane for you, it is interesting to consider.
Check out the chart made with their data:
As you can see, the “typical mortgage payment’ was lower in 2012 BUT mortgage payments today are lower than they were in 2000! It is still possible to buy a home and have a very affordable payment.
There is plenty of uncertainty in the world today. It is this uncertainty that prevents some people from buying a home.
However, one thing is certain: You will always need a place to live.
In a world filled with uncertainty, owning your home can be one way to ensure your future. You just have to be ready for the financial obligation and make sure you do not let your ego overrule your budget!
UN Special Envoy on Poverty in the US
Blistering stuff from Professor Philip Alston, United Nations Special Rapporteur on extreme poverty and human rights:
The United States is one of the world’s richest, most powerful and technologically innovative countries; but neither its wealth nor its power nor its technology is being harnessed to address the situation in which 40 million people continue to live in poverty.
My visit coincides with a dramatic change of direction in US policies relating to inequality and extreme poverty. The proposed tax reform package stakes out America’s bid to become the most unequal society in the world, and will greatly increase the already high levels of wealth and income inequality between the richest 1% and the poorest 50% of Americans. The dramatic cuts in welfare, foreshadowed by the President and Speaker Ryan, and already beginning to be implemented by the administration, will essentially shred crucial dimensions of a safety net that is already full of holes. It is against this background that my report is presented.
American exceptionalism was a constant theme in my conversations. But instead of realizing its founders’ admirable commitments, today’s United States has proved itself to be exceptional in far more problematic ways that are shockingly at odds with its immense wealth and its founding commitment to human rights. As a result, contrasts between private wealth and public squalor abound.
Some will want to point the blame at President Trump but this problem did not suddenly occur when he came into office. Not that I am defending him since his policies seem to further exacerbate this problem.
If we must place the blame on someone, then it is on ourselves for allowing things to get this bad. I know it is far easier to blame others for the current state of affairs.
But when you point at someone, you have 3 fingers pointing back at you…
We need to take a long hard look at America and make some tough choices. I strongly recommend you take the time to read this report.
Fannie and Freddie Needs Competition
A pair of U.S. senators is determined to entice more companies to compete with Fannie Mae and Freddie Mac in the housing-finance market.
If no rivals develop, the mortgage-finance giants could remain where they are now: under government control.
A plan being developed by Republican Bob Corker of Tennessee and Democrat Mark Warner of Virginia would lower barriers to entry by removing some advantages Fannie and Freddie now possess. The goal is to create a system sturdy enough to withstand the failure of any one company and avoid a rehash of the taxpayer rescue that occurred during the 2008 financial crisis.
Fannie and Freddie don’t make mortgages themselves. They buy them from lenders, wrap them into securities and make guarantees to investors in case loans default. The U.S. government took over the companies during the 2008 credit crisis, and eventually injected them with $187.5 billion in bailout money. They have since become profitable and paid more than that in dividends to the government.
We have been kicking the can down the road about GSE reform for far too long. I don’t have the answer but only the suggestion that the American taxpayer must not get the bill again…
Share Buybacks Instead of Rising Wages or Investing for Growth
From Market Watch:
Long-term investors and workers hoping that the tax overhaul and repatriation holiday will encourage investment in growth and a rise in wages should brace for disappointment.
A spike in share buyback and special dividend announcements in the past 10 days reveals that companies are more likely to use any money saved on an all-too-familiar item: shareholder returns.
Well, it did not take long to see how the tax cuts for corporations will be used…
U.S. Lawmakers Are Redistributing Income From the Poor to the Rich
From The Washington Post:
Back in 1980, the bottom 50 percent of wage-earners in the United States earned about 21 percent of all income in the country — nearly twice as much as the share of income (11 percent) earned by the top 1 percent of Americans.
The bottom 50 percent take in only 13 percent of the income pie, while the top 1 percent grab over 20 percent of the country’s income. Since 1980, in other words, the U.S. economy has transferred eight points of national income from the bottom 50 percent to the top 1 percent.
Ouch! How much longer until this starts to cause social unrest? So many are upset about the status quo that the growing desire for a third party could become a reality.
Which will really upset Big Brother…
Well that is it for today! Be sure to hit those share buttons if you enjoyed the post and subscribe so you never miss another post!