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Death Of The American Dream And Home Ownership?

Death Of The American Dream And Home Ownership?

Authored by Michael Wilkerson via The Epoch Times,

Homes historically have served as the…

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Death Of The American Dream And Home Ownership?

Authored by Michael Wilkerson via The Epoch Times,

Homes historically have served as the primary store of value and wealth creation for most Americans. Housing represented one asset class that was available to both working and middle-class Americans, facilitated in part through government-sponsored entities (GSEs) such as Fannie Mae and Freddie Mac, formed following the Great Depression, that aggregated lender risk, created market liquidity, and facilitated access to mortgages to millions of ordinary Americans.

This process created a both a level playing field and a point of entry for the working and middle classes into the world of capital accumulation. Home prices would typically grow in value over time, even during inflation, which would help sustain retirees and others who had invested in their homes and built equity value over decades.

But something has changed in recent years. Global financial institutions are now crowding out traditional homebuyers, and they are being financed by these same GSEs in an apparent dilution of their legislated mandates.

One of the most oft-criticized statements arising out of the World Economic Forum (WEF), and its corporate sponsors, is that for most people, property ownership is redundant and unnecessary—an idea made notorious by the quote, that by 2030, “you’ll own nothing, and you’ll (still) be happy.” In fact, according to the WEF, private ownership should be discouraged in favor of renting, sharing, or gigging out everything … not just homes but cars, appliances, clothes, and even personal relationships.

As far as homes are concerned, the rental economy runs counter to a core aspiration of most Americans. Private property and home ownership is an American aspiration Yet home affordability is becoming more and more challenging for middle-class Americas. The monetary policies of the Federal Reserve over the past two decades have penalized the middle class by fueling financial asset-price increases. These policies primarily benefit institutions and the already propertied class by pushing excess liquidity into the financial markets. Corporates and financial institutions are benefiting, Americans, especially the younger and poorer, are losing.

Bubble, Bubble, Toils and Trouble

Most readers are familiar with the basic outline of the global financial crisis of 2008–09. In the first few years of the century, housing markets grew into a massive bubble fueled by a corrupted mortgage underwriting and securitization process and by near-zero mortgage interest rates, courtesy of the Federal Reserve. In less than seven years between the turn of the century and the housing market’s peak in 2007, U.S. housing prices increased by more than 65 percent. From that pre-crisis peak to the trough in 2012, housing prices fell nearly 20 percent before stabilizing.

From there began the “everything bubble,” wherein the value of financial assets (stocks, bonds, and housing) once again began to rise at a pace well beyond the rate of increase in real national income or labor productivity. As an example, the price of the S&P 500 Index increased threefold, or an average of 11.5 percent per year, from its lows in 2009 through the eve of the pandemic and lockdowns in early 2020, during a period in which gross domestic product (GDP) growth struggled to maintain 3 percent per year. For housing, the rise wasn’t as dramatic, growing at an average rate of 4.8 percent per year from 2012 through the end of the decade.

In the wake of the market’s chaos, Wall Street saw opportunity. Private equity firms became aggressive acquirers of residential properties following the global financial crisis. Initially, this served a public good, in that the presence of nontraditional institutional buyers helped revive broken housing markets. However, once housing markets stabilized, institutional investors began to compete with American families seeking to own their own homes. According to The Atlantic , private equity spent more than $36 billion between 2011 and 2017 on 200,000 homes, and investment firms represented about 20 percent of home purchases, competing especially among moderate and lower-priced homes.

The implications for this trend are negative, in that institutional investors with cheaper financing can distort prices and thus reduce housing affordability for the middle class. The competitive presence of these firms is disrupting the housing market in at least two ways. First, and the most destructive, institutional capital is making housing more expensive for low- and moderate-income homebuyers, especially when purchases are made at the large scale we’re seeing today. Second, it is squeezing out smaller, local investors who tend to be budding real estate entrepreneurs and mom-and-pop landlords.

This buying spree has been financed both by the Federal Reserve’s easy money policies and by the federal government’s own housing agencies, such as Fannie Mae and Freddie Mac, originally chartered to help homeowners with access to credit, which have instead provided billions of dollars in financing to these real estate acquisition firms. On the eve of the pandemic, these institutions raised hundreds of billions in new capital for residential real estate investment. The timing was auspicious.

Housing’s second boom of this century occurred during lockdowns and the shutdown of the national economy. Indeed, since the imposition of lockdowns, shuttering of businesses, travel and other restrictions in early 2020, U.S. housing prices rose a remarkable 37 percent in just two years. This was a period in which real wages were increasing by only about 3 percent annually—now 6 percent in 2022, but still not enough to keep up.

During this time, many knowledge industry employees learned that they could work as effectively from home as from the office, and people of all political stripes fled poorly managed and crime-ridden big cities for the suburbs and exurbs. As a result, housing suddenly came into greater demand. At the same time, the pace and scale of institutional acquisitions accelerated.

Much of their accumulated firepower was deployed in 2020–21, a time when ordinary Americans were income insecure and access to mortgage markets was tightening. Even historically low mortgage rates weren’t enough to help homeowners when they were competing against institutional investors that could pay all cash. Since the beginning of 2022, this situation has become worse. For individual home buyers, interest rates have doubled, e.g., increasing by 4 percent to just under 7 percent on a 30-year fixed-rate mortgage, further reducing home affordability.

The massive presence of private equity and institutional investors is contributing to housing inflation and pushing homeownership out of reach for more and more Americans. As a result, many Americans are being pushed into a rental market that also is now increasingly controlled by large investment firms who manage their properties centrally to save costs.

The entry into the single-family housing market by large institutional investors not only undermines the process of middle- and working-class capital accumulation but also risks creating a new form of feudalism. Left unchecked, such impoverishment of an entire generation may lay a foundation for social instability and unrest unlike anything we’ve witnessed in this country.

A strong and healthy America requires a prosperous and vibrant middle class. Now being challenged on multiple fronts, the American middle class must maintain its culture of home ownership to thrive in the future, not only as a store of value but also as an investment in the success of nation itself. In an inflationary environment, access to hard assets (including one’s home) becomes more critical as a hedge against the ravages of inflation and loss of purchasing power. While home ownership alone will not be enough to save the middle class (stable and well-paying jobs are obviously more critical), it’s an important element worth fighting for. This means ensuring that policies governing the GSEs (and their actual lending practices) serve the American first-time buyer and other individual homeowners they were created to support.

Tyler Durden Fri, 11/11/2022 - 12:46

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NY Fed Finds Medium, Long-Term Inflation Expectations Jump Amid Surge In Stock Market Optimism

NY Fed Finds Medium, Long-Term Inflation Expectations Jump Amid Surge In Stock Market Optimism

One month after the inflation outlook tracked…

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NY Fed Finds Medium, Long-Term Inflation Expectations Jump Amid Surge In Stock Market Optimism

One month after the inflation outlook tracked by the NY Fed Consumer Survey extended their late 2023 slide, with 3Y inflation expectations in January sliding to a record low 2.4% (from 2.6% in December), even as 1 and 5Y inflation forecasts remained flat, moments ago the NY Fed reported that in February there was a sharp rebound in longer-term inflation expectations, rising to 2.7% from 2.4% at the three-year ahead horizon, and jumping to 2.9% from 2.5% at the five-year ahead horizon, while the 1Y inflation outlook was flat for the 3rd month in a row, stuck at 3.0%. 

The increases in both the three-year ahead and five-year ahead measures were most pronounced for respondents with at most high school degrees (in other words, the "really smart folks" are expecting deflation soon). The survey’s measure of disagreement across respondents (the difference between the 75th and 25th percentile of inflation expectations) decreased at all horizons, while the median inflation uncertainty—or the uncertainty expressed regarding future inflation outcomes—declined at the one- and three-year ahead horizons and remained unchanged at the five-year ahead horizon.

Going down the survey, we find that the median year-ahead expected price changes increased by 0.1 percentage point to 4.3% for gas; decreased by 1.8 percentage points to 6.8% for the cost of medical care (its lowest reading since September 2020); decreased by 0.1 percentage point to 5.8% for the cost of a college education; and surprisingly decreased by 0.3 percentage point for rent to 6.1% (its lowest reading since December 2020), and remained flat for food at 4.9%.

We find the rent expectations surprising because it is happening just asking rents are rising across the country.

At the same time as consumers erroneously saw sharply lower rents, median home price growth expectations remained unchanged for the fifth consecutive month at 3.0%.

Turning to the labor market, the survey found that the average perceived likelihood of voluntary and involuntary job separations increased, while the perceived likelihood of finding a job (in the event of a job loss) declined. "The mean probability of leaving one’s job voluntarily in the next 12 months also increased, by 1.8 percentage points to 19.5%."

Mean unemployment expectations - or the mean probability that the U.S. unemployment rate will be higher one year from now - decreased by 1.1 percentage points to 36.1%, the lowest reading since February 2022. Additionally, the median one-year-ahead expected earnings growth was unchanged at 2.8%, remaining slightly below its 12-month trailing average of 2.9%.

Turning to household finance, we find the following:

  • The median expected growth in household income remained unchanged at 3.1%. The series has been moving within a narrow range of 2.9% to 3.3% since January 2023, and remains above the February 2020 pre-pandemic level of 2.7%.
  • Median household spending growth expectations increased by 0.2 percentage point to 5.2%. The increase was driven by respondents with a high school degree or less.
  • Median year-ahead expected growth in government debt increased to 9.3% from 8.9%.
  • The mean perceived probability that the average interest rate on saving accounts will be higher in 12 months increased by 0.6 percentage point to 26.1%, remaining below its 12-month trailing average of 30%.
  • Perceptions about households’ current financial situations deteriorated somewhat with fewer respondents reporting being better off than a year ago. Year-ahead expectations also deteriorated marginally with a smaller share of respondents expecting to be better off and a slightly larger share of respondents expecting to be worse off a year from now.
  • The mean perceived probability that U.S. stock prices will be higher 12 months from now increased by 1.4 percentage point to 38.9%.
  • At the same time, perceptions and expectations about credit access turned less optimistic: "Perceptions of credit access compared to a year ago deteriorated with a larger share of respondents reporting tighter conditions and a smaller share reporting looser conditions compared to a year ago."

Also, a smaller percentage of consumers, 11.45% vs 12.14% in prior month, expect to not be able to make minimum debt payment over the next three months

Last, and perhaps most humorous, is the now traditional cognitive dissonance one observes with these polls, because at a time when long-term inflation expectations jumped, which clearly suggests that financial conditions will need to be tightened, the number of respondents expecting higher stock prices one year from today jumped to the highest since November 2021... which incidentally is just when the market topped out during the last cycle before suffering a painful bear market.

Tyler Durden Mon, 03/11/2024 - 12:40

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Homes listed for sale in early June sell for $7,700 more

New Zillow research suggests the spring home shopping season may see a second wave this summer if mortgage rates fall
The post Homes listed for sale in…

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  • A Zillow analysis of 2023 home sales finds homes listed in the first two weeks of June sold for 2.3% more. 
  • The best time to list a home for sale is a month later than it was in 2019, likely driven by mortgage rates.
  • The best time to list can be as early as the second half of February in San Francisco, and as late as the first half of July in New York and Philadelphia. 

Spring home sellers looking to maximize their sale price may want to wait it out and list their home for sale in the first half of June. A new Zillow® analysis of 2023 sales found that homes listed in the first two weeks of June sold for 2.3% more, a $7,700 boost on a typical U.S. home.  

The best time to list consistently had been early May in the years leading up to the pandemic. The shift to June suggests mortgage rates are strongly influencing demand on top of the usual seasonality that brings buyers to the market in the spring. This home-shopping season is poised to follow a similar pattern as that in 2023, with the potential for a second wave if the Federal Reserve lowers interest rates midyear or later. 

The 2.3% sale price premium registered last June followed the first spring in more than 15 years with mortgage rates over 6% on a 30-year fixed-rate loan. The high rates put home buyers on the back foot, and as rates continued upward through May, they were still reassessing and less likely to bid boldly. In June, however, rates pulled back a little from 6.79% to 6.67%, which likely presented an opportunity for determined buyers heading into summer. More buyers understood their market position and could afford to transact, boosting competition and sale prices.

The old logic was that sellers could earn a premium by listing in late spring, when search activity hit its peak. Now, with persistently low inventory, mortgage rate fluctuations make their own seasonality. First-time home buyers who are on the edge of qualifying for a home loan may dip in and out of the market, depending on what’s happening with rates. It is almost certain the Federal Reserve will push back any interest-rate cuts to mid-2024 at the earliest. If mortgage rates follow, that could bring another surge of buyers later this year.

Mortgage rates have been impacting affordability and sale prices since they began rising rapidly two years ago. In 2022, sellers nationwide saw the highest sale premium when they listed their home in late March, right before rates barreled past 5% and continued climbing. 

Zillow’s research finds the best time to list can vary widely by metropolitan area. In 2023, it was as early as the second half of February in San Francisco, and as late as the first half of July in New York. Thirty of the top 35 largest metro areas saw for-sale listings command the highest sale prices between May and early July last year. 

Zillow also found a wide range in the sale price premiums associated with homes listed during those peak periods. At the hottest time of the year in San Jose, homes sold for 5.5% more, a $88,000 boost on a typical home. Meanwhile, homes in San Antonio sold for 1.9% more during that same time period.  

 

Metropolitan Area Best Time to List Price Premium Dollar Boost
United States First half of June 2.3% $7,700
New York, NY First half of July 2.4% $15,500
Los Angeles, CA First half of May 4.1% $39,300
Chicago, IL First half of June 2.8% $8,800
Dallas, TX First half of June 2.5% $9,200
Houston, TX Second half of April 2.0% $6,200
Washington, DC Second half of June 2.2% $12,700
Philadelphia, PA First half of July 2.4% $8,200
Miami, FL First half of June 2.3% $12,900
Atlanta, GA Second half of June 2.3% $8,700
Boston, MA Second half of May 3.5% $23,600
Phoenix, AZ First half of June 3.2% $14,700
San Francisco, CA Second half of February 4.2% $50,300
Riverside, CA First half of May 2.7% $15,600
Detroit, MI First half of July 3.3% $7,900
Seattle, WA First half of June 4.3% $31,500
Minneapolis, MN Second half of May 3.7% $13,400
San Diego, CA Second half of April 3.1% $29,600
Tampa, FL Second half of June 2.1% $8,000
Denver, CO Second half of May 2.9% $16,900
Baltimore, MD First half of July 2.2% $8,200
St. Louis, MO First half of June 2.9% $7,000
Orlando, FL First half of June 2.2% $8,700
Charlotte, NC Second half of May 3.0% $11,000
San Antonio, TX First half of June 1.9% $5,400
Portland, OR Second half of April 2.6% $14,300
Sacramento, CA First half of June 3.2% $17,900
Pittsburgh, PA Second half of June 2.3% $4,700
Cincinnati, OH Second half of April 2.7% $7,500
Austin, TX Second half of May 2.8% $12,600
Las Vegas, NV First half of June 3.4% $14,600
Kansas City, MO Second half of May 2.5% $7,300
Columbus, OH Second half of June 3.3% $10,400
Indianapolis, IN First half of July 3.0% $8,100
Cleveland, OH First half of July  3.4% $7,400
San Jose, CA First half of June 5.5% $88,400

 

The post Homes listed for sale in early June sell for $7,700 more appeared first on Zillow Research.

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February Employment Situation

By Paul Gomme and Peter Rupert The establishment data from the BLS showed a 275,000 increase in payroll employment for February, outpacing the 230,000…

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By Paul Gomme and Peter Rupert

The establishment data from the BLS showed a 275,000 increase in payroll employment for February, outpacing the 230,000 average over the previous 12 months. The payroll data for January and December were revised down by a total of 167,000. The private sector added 223,000 new jobs, the largest gain since May of last year.

Temporary help services employment continues a steep decline after a sharp post-pandemic rise.

Average hours of work increased from 34.2 to 34.3. The increase, along with the 223,000 private employment increase led to a hefty increase in total hours of 5.6% at an annualized rate, also the largest increase since May of last year.

The establishment report, once again, beat “expectations;” the WSJ survey of economists was 198,000. Other than the downward revisions, mentioned above, another bit of negative news was a smallish increase in wage growth, from $34.52 to $34.57.

The household survey shows that the labor force increased 150,000, a drop in employment of 184,000 and an increase in the number of unemployed persons of 334,000. The labor force participation rate held steady at 62.5, the employment to population ratio decreased from 60.2 to 60.1 and the unemployment rate increased from 3.66 to 3.86. Remember that the unemployment rate is the number of unemployed relative to the labor force (the number employed plus the number unemployed). Consequently, the unemployment rate can go up if the number of unemployed rises holding fixed the labor force, or if the labor force shrinks holding the number unemployed unchanged. An increase in the unemployment rate is not necessarily a bad thing: it may reflect a strong labor market drawing “marginally attached” individuals from outside the labor force. Indeed, there was a 96,000 decline in those workers.

Earlier in the week, the BLS announced JOLTS (Job Openings and Labor Turnover Survey) data for January. There isn’t much to report here as the job openings changed little at 8.9 million, the number of hires and total separations were little changed at 5.7 million and 5.3 million, respectively.

As has been the case for the last couple of years, the number of job openings remains higher than the number of unemployed persons.

Also earlier in the week the BLS announced that productivity increased 3.2% in the 4th quarter with output rising 3.5% and hours of work rising 0.3%.

The bottom line is that the labor market continues its surprisingly (to some) strong performance, once again proving stronger than many had expected. This strength makes it difficult to justify any interest rate cuts soon, particularly given the recent inflation spike.

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