Discussing unemployment claims and wage growth, does renting beat buying in today’s market, why home buyers must look closely at the neighborhood when viewing homes, birth rates and home prices plus lower priced homes increasing in value faster than other price ranges
Weekly Jobless Claims Decrease
In the week ending June 2, the advance figure for seasonally adjusted initial claims was 222,000, a decrease of 1,000 from the previous week’s revised level. The previous week’s level was revised up by 2,000 from 221,000 to 223,000. The 4-week moving average was 225,500, an increase of 2,750 from the previous week’s revised average. The previous week’s average was revised up by 500 from 222,250 to 222,750.
Good news but remember that the 4-week moving average is the number to watch since it is less noisy. Also, I tend to look at YoY changes more than MoM changes. That being said, check out this chart showing the 4-week moving average for the last year:
The YoY change is good but this could cause the Fed to increase their benchmark rate 2 more times after their meeting next week. The Fed is already expected to increase their rate next week so we could see mortgage rates increase.
While the Fed does not directly set mortgage rates, what they do can affect mortgage rates. The real question is what will the Fed do and how high can they increase rates before it causes the economy to slow?
Does Renting Beat Buying Now?
From the latest Beracha, Hardin & Johnson Buy vs. Rent (BH&J) Index:
With housing markets around the U.S. nearing the peak in their cycles, renters who reinvest their money have an increasingly better chance at creating wealth than individuals who purchase a home, according to the latest national index produced by Florida Atlantic University and Florida International University faculty.
This marginal move in the Beracha, Hardin & Johnson Buy vs. Rent (BH&J) Index shows an increased possibility of significant price retractions in many metro areas around the country, while other markets’ pricing can be expected to remain stable based on their index scores.
Every time the Beracha, Hardin & Johnson Buy vs. Rent (BH&J) Index shows that buying beats renting, we hear about it from a multiple of sources But when renting starts to beat buying, these same sources ignore this indicator…
Not being one to shy away from speaking the truth even when it is an uncomfortable truth, lets look a little deeper. Can you rent and actually come out ahead?
You can IF you can rent for less monthly than you can buy AND you invest the difference in a manner that will beat the increases in home prices. You may have heard of home ownership referred to as a form of “forced savings” and this is because people cannot blow the money they pay every month on their mortgage.
Well, unless they abuse the equity in their home. Do you think that the majority of renters will be able to rent a home for less than they can buy AND then be able to invest the savings in a way that beats the long term appreciation of home prices?
Maybe but then again how probable is it? It might be easy for some individuals to invest instead of spending but sadly, too much of our economy is driven by frivolous spending…
Maybe many people realize that the “forced savings’ is just one of the many benefits of owning a home. After all, the rate of home ownership has been increasing since it hit a 50 year low back in 2016.
According to the Census Bureau, the home ownership rate in the first quarter of 2018 was 64.2%, higher than last year’s 63.6%. Check out this chart showing the home ownership rate going back to 1996:
You can see we are still below the peak back in 2005 but I would say we need to focus on the recent increases AND making sure that the increases are achieved in a way that is sustainable.
We do not want to ever repeat the mistakes that lead to the housing market crash!
There will always be some that ALWAYS say that you should buy a home. And some that will always say that renting beats owning.
Every person must decide what is truly best for them. There are definite advantages to both but owning does have more.
And owning a home is still an important part of achieving the American Dream according to a Pew Research survey:
- 43% said homeownership was essential to the American Dream
- 48% said homeownership was important to the American Dream
- Only 9% said it was not important
If you feel that part of achieving the American Dream includes owning a home, do not hesitate to investigate the possibilities. I suggest starting by checking your credit and starting to read every home buying article you can.
Speak to several mortgage lenders to discuss your options and the possibilities. Also, ask friends, family and co-workers for their recommendations for a good Realtor to ensure your home buying success!
If the Job Opening Are Strong, Why Aren’t Wages Growing Faster?
You may recall that yesterday I shared that the DOL reported that there are more job openings than job seekers. The press release was filled with lots of butt kissing of the Trump Administration and it turns out that things may NOT be quite as great…
Consider this from Fabius Maximus:
Since the recession, unemployment has fallen while the number of openings has increased. In April 2018 there were more openings than unemployed. If we matched the unemployed with the jobs: presto, no unemployment!
The narrative describes an economy at full employment, with shortages of skilled workers. There is one problem with this story. The best indicator of the supply-demand balance in a free market is price. For workers, that price is the hourly wage (75% of workers are “production and supervisory workers” who are paid per hour). Growth in real wages peaked in January 2015 at 2.3%/year. In April it was only 0.2%.
If employers are truly having a hard time finding good workers, they need to offer a higher starting pay. But this is not happening despite all the positive news about the jobs market.
Something else to consider is this tidbit from Danielle DiMartino Booth in Bloomberg:
Wage inflation is alive and well in certain industries, and therein lies a challenge for managers to overcome. Some of the best insights into the overwhelming demand for workers can be gleaned from the less-followed but rich data published monthly by Challenger, Gray & Christmas. The firm is best known for its data on layoffs, but its monthly hiring announcements provide great information on the bottlenecks in the labor force.
The big picture is stark. Hiring intentions this year are off by almost half compared with 2017, driven by a collapse in the demand for workers in Information Technology, Entertainment & Leisure, Telecommunications and Retail. What little demand there is can be seen in some of the industries that have the smallest pools of available workers such as Construction, Energy and Electronics.
So there is wage growth but only in certain industries. Plus hiring intentions are not as strong compared to 2017.
So maybe once the butt kissing subsides and we dig a little deeper, we see a different picture of the employment situation. Long time readers know I have been saying we must have strong income growth for ALL Americans to have a truly healthy economy.
The Importance of the Neighborhood to Home Buyers
Interesting tidbits from a study by Ally:
Almost nine in 10 Americans surveyed (88%) say the vibe of a neighborhood is important in deciding where to live, with half of those respondents (49%) saying it is very important.
Four in five U.S. adults (80%) say their neighborhood has to fit their personality. In fact, more than four in five (82%) say if they didn’t like their neighborhood, they would consider moving.
Nearly three-quarters (73%) of respondents also said they would be willing to settle for a smaller house and/or pay a little more for a house in their perfect neighborhood.
If you are looking at homes for sale, you need to focus on the neighborhood as well as the home itself. While you may be planning on living in a home forever, finding the best location will help your new home’s value to increase faster.
Also, you need to consider your quality of life and the increased satisfaction if the neighborhood is excellent. It really is important to find the right location when buying a home!
Birth Rates Dropped Most Where Home Values Grew Most
The economic recovery produced a sharp rise in home prices from 2010 to 2016, and a simultaneous drop in the birth rate. The trends might be related (which is not to say causal), especially for women in their late 20s: Birth rates fell the most in counties where home values grew the most, and birth rates fell less and sometimes even increased in counties with smaller home price increases.
Pretty interesting stuff and they point out that they do not see home prices causing the change in birth rates. Still, we have to wonder if rising home prices are causing some home buyers to delay having children?
When you read stuff like this, always remember that correlation is not causation.
Lower Priced Homes Increasing in Value Faster Than Higher Priced Homes
National home prices increased 6.9 percent year over year in April 2018, and are forecast to increase 5.3 percent from April 2018 to April 2019. Further, an analysis of the market by price tiers indicates that lower-priced homes experienced significantly higher gains, according to the latest CoreLogic Home Price Index (HPI®) Report.
The lowest price tier increased 9.3 percent year over year, compared with 8.5 percent for the low- to middle-price tier, 7.1 percent for the middle- to moderate-price tier, and 5.7 percent for the high-price tier.
This drives home the extreme need for affordable homes. The very strong demand for affordable homes is the main cause for this price range of homes increasing faster than other price ranges,
Remember that CoreLogic is looking at the entire US and you will find different data for every local market. This is why you MUST work with an experienced local Realtor to be successful when buying or selling real estate!