Why the Housing Shortage?

 The Mortgage Corner

How can we recover from our housing shortage that has resulted in record homelessness and a lack of affordability for many young households?

FREDhousingstarts

There haven’t been enough homes built to satisfy prospective home buyers for a decade—from the end of the housing bubble until 2020, thanks to the oversupply generated during housing bubble and Great Recession, as can be seen in the FRED graph of housing construction dating from 2000 (large gray bar is the Great Recession).

Builders are still not building enough homes to keep up with population growth while builder confidence remains stagnant in the face of weaker homebuyer demand. August housing starts declined 8.5% month-over-month to a seasonally adjusted annual rate of 1.307 million units, according to the latest data released by the U.S. Census Bureau.

Builders had been constructing 1.6 to over 2 million new housing units until January 2006 at the height of the housing bubble because they thought they had prospective homebuyers with adequate incomes and credit that could afford the purchases.

But lax regulations and supervision during the GW Bush administration by the U.S. Treasury and Alan Greenspan’s Federal Reserve allowed for anyone to qualify to buy a home with so-called liar loans that had artificially low start rates. The housing bubble burst when Greenspan finally began to raise interest rates to combat the rising inflation, which caused a massive defaulting of the liar loans.

More than one million new households per year are still being formed but it wasn’t until 2013 that more than one million new units were being built again. And 8.7 million jobs were lost during the Great Recession, compounding the problem of affordability.

In a word, builders must build more affordable homes. At one time 40% of existing-home sales were entry-level, first-time homebuyers that could afford to buy a home. It’s just 28% in the latest sales report by the National Association of Realtors (NAR).

Existing-home sales remained essentially the same in August, ticking down by 0.2% from July, according to the National Association of REALTORS® Existing-Home Sales Report. Existing-home sales are also hurting because of the lack of affordable financing with the 30-year fixed rate mortgage still above 6%.

"Record-high housing wealth and a record-high stock market will help current homeowners trade up and benefit the upper end of the market. However, sales of affordable homes are constrained by the lack of inventory," Yun added. "The Midwest was the best-performing region last month, primarily due to relatively affordable market conditions. The median home price in the Midwest is 22 percent below the national median price."

We got to the housing shortage largely because of bad politics and a record income inequality for working Americans that must be reversed. The best programs that subsidize building for more affordability include zoning for more units in areas near transportation centers, a state and local government mandate, and more funding set aside for affordable housing, such as tax breaks to builders for building more low income and first-time homebuyers.

Biden did that during his four years with his Housing Action Plan, that subsidized affordable housing as well as rents, but alas, much of that funding has been cut by Trump’s DOGE team in the name of downsizing government.

And a brisk summary of what Trump is doing to HUD, the government’s main housing administrator, is summarized by Shelterforce:

· HUD relaunched its website in late March, after removing 90 percent of

its content, under the pretext of improving user experience. Research publication archives, recent press releases, and much more were removed, and a religious quote of Secretary Turner’s was placed on the homepage.

· HUD Headquarters to Be Sold: With an April 15 executive order intended

to “restore common sense to Federal office space management by freeing agencies to select cost effective facilities and focus on successfully carrying out their missions for American taxpayers,”

The Trump administration, in other words, is doing almost nothing at the federal level for housing in its quest to slash government spending in order to fund Trump’s tax cuts.

Why must the federal government do better to support housing? The GW Bush administration set housing construction back a decade by causing the housing bubble with lax regulation and too easy credit conditions.

The American people will want a government that better serves Americans’ housing needs to make up for the years of mismanagement and neglect. Otherwise, the dream of many Americans for more affordable housing will forever be out of reach.

Harlan Green © 2025

Follow Harlan Green on Twitter: https://twitter.com/HarlanGreen

We Can Fix the Housing Shortage

 The Mortgage Corner

“Privately-owned housing starts in July were at a seasonally adjusted annual rate of 1,428,000. This is 5.2 percent above the revised June estimate of 1,358,000 and is 12.9 percent above the July 2024 rate of 1,265,000. Single-family housing starts in July were at a rate of 939,000; this is 2.8 percent above the revised June figure of 913,000.” US Census Bureau

FREDconstruction

The housing shortage is something most of us worry about but are helpless to fix, it seems. There are many culprits—the NIMBY crowd that won’t allow more affordable housing near their single-family homes in cities, too high mortgage rates, but most of all the seeming inability of builders to supply enough new homes due to the shortage of construction workers.

First some history. Originally, much of it was due to the busted housing bubble that led to the Great Recession in 2008. More than one million new homes were built than could be sold, a classic example of oversupply. This resulted in just 600,000 new homes being constructed annually until 2012 when the Fed began its quantitative easing policies under Fed Chair Ben Bernanke that dropped 30-year fixed mortgage rates below 5% for the first time since the 1970s.

This is why I’m using residential housing construction as a good way to measure housing supply in the above FRED graph of housing construction. Starts have hovered around 1.4 million units since 2022 and the end of the COVID-19 pandemic (gray bar).

Construction had soared immediately after the pandemic due to the rock-bottom 30-year fixed mortgage rates, then plateaued to the current 1.4 million. But the Fed raised the rock-bottom rates to combat surging inflation and fixed mortgage rates soared to 7%, making housing purchases almost unaffordable to first-time, entry level buyers.

So, we know high mortgage rates are a major component of the housing shortage. But we can also answer maybe the largest part of the problem, the lack of new homes as highlighted in a recent Forbes Magazine article. Trump’s immigrant sweeps are not only hurting housing construction, but the job market in general.

“Immigrants make up 34% of the construction workforce, according to the Associated General Contractors of America. In states like California, Texas, New Jersey, Florida, Georgia and New York, they account for about half. Construction drives 4.5% of U.S. gross domestic product, making it the country’s tenth largest industry.

“Broaden the view and the impact grows. Residential housing, once you include rent and utility payments, fuels 15 to 18% of GDP, according to the National Association of Home Builders. Add commercial building to the mix and construction rises to the top of the chart.”

The good news what may come out of the housing shortage and homeless scourge. The highly unpopular immigrant sweeps of ICE agents invading homes, public streets, and workplaces.

The sharp drop in nonfarm payrolls in the last three unemployment reports is being blamed on the loss of possibly one million immigrants from our labor force, according to labor economists. This will hurt economic growth, because immigrants have traditionally supplied one million new Americans each year to our rapidly declining population growth rate.

Forbes cites a working paper published this month from the American Enterprise Institute (AEI), a conservative economics policy center, that found the Trump administration’s immigration policy will “likely result in a negative net migration in 2025—something the U.S. has not experienced in decades”—that would shrink labor participation and “put significant downward pressure on growth in the labor force and employment.”

It's a very sad tale. Trump’s Republicans have turned their backs on what has been the life blood of American Democracy that we can do little about without  without recognizing that we can't do it without immigrants.

Harlan Green © 2025

Follow Harlan Green on: https://twitter.com/HarlanGreen

Our Housing Problem

 The Mortgage Corner

We know we have a housing shortage, but not how to fix it. Politicos are finally beginning to take notice because of the damage that has been done—especially to working Americans who no longer can afford a home of their own.

VP Harris is the first to respond to the need, saying she has a policy to create 3 million new dwellings in her first term as President, if she is elected. In addition to the one million units already in various stages of development, she would create two million additional units with the following incentives:

• · A new tax incentive for building starter homes
• · Expanding tax incentives for businesses that build affordable rental housing
• · Double the Biden-Harris proposed innovation fund for local initiatives to solve housing issues
• · Cut red tape and streamline permitting processes to get houses up quicker

Why shouldn’t governments fix it? The primary cause of our housing shortage was the busted housing bubble when one million too many homes were built for a number of reasons that caused the housing bubble, such as those liar loans that lenders allowed to qualify buyers with no real income.

But lax government regulation was also part of the problem. There was very little oversight of the financial chicanery that caused the failure of Lehman Brothers and the Great Recession that followed.

Housing construction went from a high of 1.4 million units annually in 2005 to just 600,000 units per year in the 10 years that followed the Great Recession.

Because of its severity, builders stopped building enough homes for a population that continued to add one million new households every year. That’s a shortfall of 4 million units over 1o years(1m-600kx10=4m). Add the fact that the millennial generation was the most populous generation since the baby boomers and had nowhere to live—so many continued to live with their parents.

It will take multiple government actions, from changing zoning laws that create more density at the state and local levels to a national program such as VP Harris outlined to cure the shortfall.

The private sector has supported public sector help in the past, when cures for the 10-year construction lapse were being discussed. I wrote about it in a 2012 Huffington Post blog piece:

“Congress isn't the only reason for housing's problem. The Obama administration is still not serious about either their HAMP or HARP II loan modification programs. They had set aside some $11 billion from the ARRA legislation back in 2009 that hasn't been spent!

“The result was banks and Wall Street kept begging the Federal Reserve to provide stimulus by buying up to as much as $1 billion more of mortgage-backed securities (to keep mortgage rates low).”

There are signs of life in today’s housing market. Mortgage rates have been plunging since the Federal Reserve began to cut interest rates, and new-home construction has picked up with enough supply to lower new-home prices. The seasonally adjusted estimate of new houses for sale at the end of August was 467,000. This represents a 7.8 month supply at the current sales rate. The median sales price of a new home sold in August fell to $420,600 from $429,000 in the prior month.

Census Bureau

Sales of new single-family houses in August 2024 were at a seasonally adjusted annual rate of 716,000, according to estimates released jointly today by the U.S. Census Bureau and the Department of Housing and Urban Development. This is 4.7 percent (±10.6 percent)* below the revised July rate of 751,000, but is 9.8 percent (±22.1 percent)* above the August 2023 estimate of 652,000.

It could be the beginning of an upward trend in overall sales, but the question now is not so much about mortgage rates, which will help sales and affordability, but adequate supply that matches more closely with household formation.

The dearth of supply is just one of the ways Americans have been paying for the excesses of the Great Recession and housing bubble. It can only be fixed with a national program that teams the public and private sectors to make housing affordable once again for entry-level as well as middle class American renters and buyers.

Harlan Green © 2024

Follow Harlan Green on Twitter: https://twitter.com/HarlanGreen

Whose Inflation Is Too High?

 The Mortgage Corner

Declining inflation has stalled in the first quarter, which is hurting prospects for any Fed rate cuts, and causing consumers to buy less. The inflation rate is currently stuck in the 3 percent range, though much lower for goods earlier in the supply chain, so large retailers like Walmart and Target are having to cut prices.

Monthly retail sales didn’t increase at all in May, after two consecutive months of 0.8 percent growth and almost 3 percent annual growth.

Walmart said on May 16 that it has rolled back prices on nearly 7,000 items in its stores, reports CNN, noting deflationary trends in general merchandise.

“Our combination of everyday low prices plus a large number of rollbacks is resonating” with consumers, Walmart CEO Doug McMillon said on a call with analysts.

CNN also reported that Target slashed prices on more than 1,500 items, ranging from laundry detergent to cat food to sunscreen, with thousands more price cuts expected over the summer.

It’s a sign that’s made Federal Reserve Governors more hopeful inflation will continue to decline, and prices even begin to fall, rather than continue to rise more slowly.

Federal Reserve officials at their last policy meeting indicated they still had faith price pressures would ease, if only slowly, according to the minutes of the central bank’s April 30-May 1 session.

"Participants ... noted that they continued to expect that inflation would return to 2% over the medium term," the minutes said, but "the disinflation would likely take longer than previously thought."

AtlantaFed

Inflation trends seem to be in the eye of the beholder. Businesses are now seeing much lower inflation, according to recent surveys. Year-ahead inflation expectations had fallen to 2.3 percent in May 2024 from as high as 3.8 percent in March 2022 for businesses, according to the Atlanta Federal Reserve.

Whereas the Federal Reserve Bank of New York’s Center for Microeconomic Data today released the April 2024 Survey of Consumer Expectations, which went in the opposite direction.

It shows that inflation expectations increased at the short-term and longer-term horizons, while decreasing at the medium-term horizon: to 3.3% from 3.0% at the one-year horizon (remaining below its 12-month trailing average of 3.5%).

The main culprit seems to be housing prices. “Median home price growth expectations increased to 3.3% after remaining unchanged at 3.0% for seven consecutive months. This is the highest reading of the series since July 2022,” said the NY Fed.

Year-ahead consumer commodity price expectations also rose across the board in April for gas, food, medical care, and college education.

Why aren’t consumers seeing the lower inflation expectations of businesses? Target and Walmart are telling us why. Simply put, retail prices are much higher than the raw cost of goods and services charged to businesses for several reasons. There’s the transportation and distribution costs, for starters, and profit margin that retailers must retain to stay in business.

The truth is that consumers are seeing higher costs than businesses and are beginning to rebel by choosing cheaper products. It also refutes an economic maxim about consumer behavior that higher inflation expectations will cause consumers to spend more, not less.

There is some good news for consumers. New-home prices are falling as the supply of new homes has increased.

Sales of newly built, single-family homes in April fell 4.7% to a 634,000 seasonally adjusted annual rate from a downwardly revised reading in March, according to newly released data from the U.S. Department of Housing and Urban Development and the U.S. Census Bureau. The pace of new home sales in April is down 7.7% from a year earlier.

The median new home sale price in April was $433,500, down 1.4% from March, and up 3.9% compared to a year ago. This is because of the increased supply. There’s a 9.1-month supply of new homes for sale.

Dear US Fed Governors, please pay attention to this. Shoppers can act rationally when their pocketbook size is at risk!

Harlan Green © 2024

Follow Harlan Green on Twitter: https://twitter.com/HarlanGreen

More New Homes Needed

 The Mortgage Corner

Higher new home sales and rising homebuilders’ optimism foretells a strong summer sales season if builders and existing-home inventories don’t run out of housing stock. More new homes could also soften what is being termed a rolling recession with some sectors (such as manufacturing) faltering and other sectors (e.g, services ) still growing.

Builders must pick up the pace for that to happen, however.

Sales of new single‐family houses in March 2023 were at a seasonally adjusted annual rate of 683,000, according to estimates released jointly today by the U.S. Census Bureau and the Department of Housing and Urban Development.

“This is 9.6 percent (±15.2 percent) * above the revised February rate of 623,000, but is 3.4 percent (±12.7 percent)* below the March 2022 estimate of 707,000. The seasonally‐adjusted estimate of new houses for sale at the end of March was 432,000. This represents a supply of 7.6 months at the current sales rate.”

 

Census.gov

Builders remained cautiously optimistic in April, as limited resale inventory helped to increase demand in the new home market. Single-family builder confidence in April rose one point to 45, according to the NAHB/Wells Fargo Housing Market Index.

Currently, one-third of housing inventory is new construction, compared to historical norms of around 10%. More buyers looking at new homes, along with the use of sales incentives, have supported new home sales since the start of 2023. Builders note that additional declines in mortgage rates (to below 6%) will further boost demand.

“A lack of resale inventory combined with many builders offering price incentives helped to push new home sales higher in March,” said Alicia Huey, chairman of the National Association of Home Builders (NAHB). “However, sales are down 3.4% compared to a year ago because of the shortage of electrical transformer equipment and building material price volatility.”

Whereas pending home sales of homes under contract but not closed edged down. The Pending Home Sales Index (PHSI)^* – a forward-looking indicator of home sales based on contract signings – waned by 5.2% to 78.9 in March. Year over year, pending transactions dropped by 23.2%. An index of 100 is equal to the level of contract activity in 2001.

“The lack of housing inventory is a major constraint to rising sales,” said NAR Chief Economist Lawrence Yun. “Multiple offers are still occurring on about a third of all listings, and 28% of homes are selling above list price. Limited housing supply is simply not meeting demand nationally.”

Chief economist Yun believes mortgage rates will improve the sales outlook by continuing to decline below 6 percent into next year. The 30-year conforming fixed rate is even obtainable at 5.75 percent for one origination point in California.

This is while the initial estimate of first quarter 2023 GDP growth was 1.1 percent, close to the consensus by economists. The problem is demand has far exceeded supplies, keeping housing prices and inflation too high and the Fed unhappy.

The lack of existing supply is a problem in all economics sectors, which may mean the Fed will continue to boost interest rates until markets catch up, though they’ve said they will pause for the rest of the year after another May 0.25 percent increase.

So a rolling recession could mean a bumpy ride for consumers who now must choose whether to buy now or wait until interest rates and inflation continue to moderate.

Harlan Green © 2023

Follow Harlan Green on Twitter: https://twitter.com/HarlanGreen

Housing Market Recovering

 The Mortgage Corner

Census.gov

Real estate is the industry most affected by rising interest rates, so it’s encouraging to see that housing sales are showing signs of a revival. Both new-home and pending home sales jumped in January, even with still expensive mortgage rates.

One reason: builders are buying down those mortgage rates.

Sales of newly built, single-family homes in January increased 7.2 percent to a 670,000 seasonally adjusted annual rate from an upwardly revised reading in December, according to newly released data by the U.S. Department of Housing and Urban Development and the U.S. Census Bureau.

And it’s not that expensive for a builder to offer an affordable mortgage rate—just 4 points (%) to buy down a conforming 30-year fixed rate mortgage to 4.875%; not that much to tack onto a sales price.

“The latest HMI survey shows 57% of builders are using incentives to bolster sales, including providing mortgage rate buy-downs, paying points for buyers and offering price reductions,” said Alicia Huey, chairman of the National Association of Home Builders (NAHB). “Buyer incentives, along with stabilizing mortgage rates during the month of January, increased the pace of new home sales for the month. However, in a sign of current market weakness, sales are down 19.4% compared to a year ago.”

Pending home sales also improved in January for the second consecutive month, according to the National Association of Realtors^Ò.

The Pending Home Sales Index (PHSI)^* — a forward-looking indicator of home sales based on contract signings — improved 8.1 percent to 82.5 in January. (But) Year-over-year, pending transactions dropped by 24.1 percent.

“Buyers responded to better affordability from falling mortgage rates in December and January,” said NAR Chief Economist Lawrence Yun.

What is causing more optimism among homebuyers? Builders are seeing more traffic from new-home wannabes, for starters.

The National Association of Builders reports two consecutive solid monthly gains for builder confidence, spurred in part by easing mortgage rates, signal that the housing market may be turning a corner even as builders continue to contend with high construction costs and building material supply chain logjams.

A more immediate reason for the improvements is an acute housing shortage. Builders essentially stopped building new homes for a decade after the Great Recession and busted housing bubble.

“With the largest monthly increase for builder sentiment since June 2013, excluding the period immediately after the onset of the pandemic, the HMI indicates that incremental gains for housing affordability have the ability to price-in buyers to the market,” said NAHB Chairman Alicia Huey. “The nation continues to face a sizeable housing shortage that can only be closed by building more affordable, attainable housing.”

The NAR anticipates the economy will continue to add jobs throughout 2023 and 2024, with the 30-year fixed mortgage rate steadily dropping to an average of 6.1% in 2023 and 5.4% in 2024.

Most prospective homebuyers are still on the sidelines, however. The Conference Board reported a further decline in consumer confidence reflecting large drops in confidence for households aged 35 to 54 and for households earning $35,000 or more,” said Ataman Ozyildirim, Senior Director, Economics at The Conference Board.

“While consumers’ view of current business conditions worsened in February, the Present Situation Index still ticked up slightly based on a more favorable view of the availability of jobs. In fact, the proportion of consumers saying jobs are ‘plentiful’ climbed to 52.0 percent—back to levels seen in the spring of last year.”

So what are homebuyers to do? Should they look for homebuilders willing to buy down that mortgage to 4.875%, or wait while housing prices continue to climb?

Harlan Green © 2023

Follow Harlan Green on Twitter: https://twitter.com/HarlanGreen

Best Home Sales in Years

 The Mortgage Corner

Home sales are holding up and prices slowly moderating, even with limited inventories. December new-home sales jumped 12 percent in a year, according to the US Census Bureau. Also in 2021, existing-home sales totaled 6.12 million – an increase of 8.5 percent from the prior year and the highest annual level since 2006.

“Sales of new single‐family houses in December 2021 were at a seasonally adjusted annual rate of 811,000, according to estimates released jointly today by the U.S. Census Bureau and the Department of Housing and Urban Development.  This is 11.9 percent (±20.3 percent) above the revised November rate of 725,000, but is 14.0 percent (±16.6 percent)* below the December 2020 estimate of 943,000. An estimated 762,000 new homes were sold in 2021. This is 7.3 percent (±5.1 percent) below the 2020 figure o 822,000.”

Census.gov

New-home sales have been rising steadily since the end of the Great Recession and housing bubble in 2009, as the Census graph shows. Why not, with so few homes for sale, according to the Realtors?

"Buyer competition alone is unrelenting, but home seekers have also had to contend with the negative impacts of supply chain disruptions and labor shortages this year," said NAR chief economist Lawrence Yun. "These aspects, along with the exorbitant prices and a lack of available homes, have created a much tougher buying season."

The inventory of unsold existing homes fell to an all-time low of 910,000 at the end of December,, which is equivalent to 1.8 months of the monthly sales pace, also an all-time low since January 1999.

This is while last week, on a year-over-year basis, private residential construction spending is up 16.3 percent. Non-residential spending is up 6.7 percent year-over-year. Public spending is down 0.8 percent year-over-year.

That’s why the inventory of homes under construction at 263,000, is the highest since 2007.

Calculated Risk

Housing prices are beginning to slow their climb as can be seen in the above Calculated Risk graph. CR’s Bill McBride recently commented on the price moderation:

“The MoM increase in Case-Shiller was at 1.14%; still historically high, but lower than the increases in the 2nd half of 2020 and first half of 2021. House prices started increasing sharply in the Case-Shiller index in August 2020, so the last 16 months have all been historically very strong. But the peak of MoM growth is behind us - and the year-over-price growth is starting to decelerate.”

So let us hope that for sale inventories continue to grow and housing prices continue to moderate in 2022, so that more homes become affordable. The demand for housing is at an all-time high and consumers’ personal savings still at a historic high.

There is no better time to recover from COVID-19’s many variants.

Harlan Green © 2021

Follow Harlan Green on Twitter: https://twitter.com/HarlanGreen

Home Prices Keep Rising

The Mortgage Corner

Calculated Risk

I said last month the housing market was cooling with the fall weather, but maybe not yet. Because housing prices are still rising in double digits, although they may be leveling off.

The S&P CoreLogic Case-Shiller U.S. National Home Price NSA Index of single-family, same-home price changes, covering all nine U.S. census divisions, reported a 19.8 percent annual gain in August, remaining the same as the previous month. It’s a 3-month average for 20 metropolitan areas, so in some cities’ prices are rising even faster.

Phoenix led the way with a 33.3 percent year-over-year price increase, followed by San Diego with a 26.2 percent increase and Tampa with a 25.9 percent increase. Eight of the 20 cities reported higher price increases in the year ending August 2021 versus the year ending July 2021.

How about that for some irrational exuberance in the housing market? Are we seeing a repeat of the housing bubble, when prices rose double-digits in the early 2000s and again in 2014 (see above graph)?

I don’t think so. While Fed Chair Greenspan was pushing interest rates close to zero then to finance GW’s wars on terror, credit conditions today are much tighter and lenders no longer offer so-called liar loans that hid the real interest rate.

It’s not good news for those having difficulty in finding affordable housing, given the low for-sale inventory. But interest rates still remain at record lows, with 30-year conforming and super-conforming fixed rates around 3.0 percent.

Will housing prices eventually stabilize? Only when enough residences are built to satisfy the pent-up demand that came from a steep drop in new housing construction since the end of the Great Recession.

The Commerce Department said sales of new single-family homes surged 14.0 percent to a seasonally adjusted annual rate of 800,000 units in September, so there’s some hope for increasing supply. But sales were as high as 1,400,000 per year during the height of the housing bubble.

Unfortunately, Calculated Risk reports that just 36,000 new homes were available for sale in September, while106,000 new homes have yet to be completed. That leaves a 0.5- month inventory, close to a record low, when 3 to 4 months was the norm.

Calculated Risk

Existing-home sales also rebounded in September after seeing sales wane the previous month, according to the National Association of Realtors®. Each of the four major U.S. regions witnessed increases on a month-over-month basis.

The NAR reported total existing-home sales,¹ https://www.nar.realtor/existing-home-sales, completed transactions that include single-family homes, townhomes, condominiums and co-ops, rose 7.0 percent from August to a seasonally adjusted annual rate of 6.29 million in September. However, sales decreased 2.3 percent from a year ago (6.44 million in September 2020).

"Some improvement in supply during prior months helped nudge up sales in September," said Lawrence Yun, NAR's chief economist. "Housing demand remains strong as buyers likely want to secure a home before mortgage rates increase even further next year."

“The housing sector is clearly settling down,” said Yun, who described the surge of home buying in late 2020 and early 2021 as an anomaly.

Home sales last peaked in 2020 at the beginning of the pandemic, but inventories are now at historic lows. Housing prices began their current steep climb at the same time. Unless builders and governments find ways to build more affordable housing, the housing shortage could continue for years and leave a whole generation wanting a home.

Harlan Green © 2021

Follow Harlan Green on Twitter: https://twitter.com/HarlanGreen

 

July Home Sales Stay Strong

 

The Mortgage Corner

Calculated Risk

WASHINGTON (August 23, 2021) – Existing-home sales rose in July, marking two consecutive months of increases, according to the National Association of Realtors®. Three of the four major U.S. regions recorded modest month-over-month gains, and the fourth remained level.

New-home sales also increased, signaling that soaring home prices haven’t discouraged buyers who are migrating to the suburbs and hinterlands as more work from home in the new gig economy. We have seen digital workers migrating from their offices in Seattle and other major cities to smaller towns in the Midwest and New England to live in more comfortable surroundings, thanks to the Internet.

FREDCaseShiller

The S&P CoreLogic Case-Shiller U.S. National Home Price NSA Index, covering existing-home sales in all nine U.S. census divisions, reported a 16.6 percent annual gain in May, up from 14.8 percent in the previous month.

The median existing-home price tallied by the NAR for all housing types in July was $359,900, up 17.8 percent from July 2020 ($305,600), which differs from Case-Shiller because CS uses a 3-month trailing average to make it more statistically valid. Each region saw prices climb. This marks 113 straight months of year-over-year gains, say the Realtors.

Total existing-home sales,¹ https://www.nar.realtor/existing-home-sales, completed transactions that include single-family homes, townhomes, condominiums and co-ops, grew 2.0 percent from June to a seasonally adjusted annual rate of 5.99 million in July. Sales inched up year-over-year, increasing 1.5 percent from a year ago (5.90 million in July 2020).

"We see inventory beginning to tick up, which will lessen the intensity of multiple offers," said Lawrence Yun, NAR's chief economist. "Much of the home sales growth is still occurring in the upper-end markets, while the mid- to lower-tier areas aren't seeing as much growth because there are still too few starter homes available."

The months of supply increased in July to 6.2 months from 6.0 months in June, with inventories returning to normal levels. The all-time high was 12.1 months of supply in January 2009. The all-time low was 3.5 months, most recently in October 2020.

There is still not enough housing to meet soaring demand. Total existing-home housing inventory at the end of July totaled 1.32 million units, up 7.3 percent from June's supply and down 12.0 percent from one year ago (1.50 million). Unsold inventory sits at a 2.6-month supply at the present sales pace, up slightly from the 2.5-month figure recorded in June but down from 3.1 months in July 2020, a historic low.

The housing market is so hot that individual investors or second-home buyers, who account for many cash sales, purchased 15 percent of homes in July. All-cash sales accounted for 23 percent of transactions in July, and up from 16 percent in July 2020.

But first-time buyers purchased just 30 percent of existing sales, which means the rest of the young adults leaving school and/or their parents may find rental housing to be a more viable option for the foreseeable future. How long is that—who knows?

Harlan Green © 2021

Follow Harlan Green on Twitter: https://twitter.com/HarlanGreen

January Home Sales Exceed Expectations

 The Mortgage Corner

Calculated Risk

The Calculated Risk/FRED graph shows that new-home sales are approaching the 2000 level at the start of the last housing bubble that ultimately resulted in the Great Recession (blue bars are recessions). But that doesn’t mean we are at the beginning of another housing bubble.

New home sales for January were reported at 923,000 on a seasonally adjusted annual rate basis (SAAR), said US Census Bureau, resulting in the decline to just 4.0 months of supply remaining for sale. That and still record low interest rates are boosting prices. But there is no bubble forming because there is not enough supply to satisfy current demand. Sales for the previous three months were revised up, also.

Existing-home sales are soaring this early in the year as well because last year’s selling season had a delayed fall start due to the pandemic, according to the National Association of Realtors (NAR). We can expect this surge to also continue because of ongoing demand.

Total existing-home sales, https://www.nar.realtor/existing-home-sales, completed transactions that include single-family homes, townhomes, condominiums and co-ops, increased 0.6 percent from December to a seasonally-adjusted annual rate of 6.69 million in January. Sales in total climbed year-over-year, up 23.7 percent from a year ago (5.41 million in January 2020).

Demand is so hot that the median existing-home sales price rose to $303,900, 14.1 percent higher from one year ago. And as of the end of January, existing-home inventory fell to a record-low of 1.04 million units, down by 25.7 percent year-over-year – a record decline.

"Home sales continue to ascend in the first month of the year, as buyers quickly snatched up virtually every new listing coming on the market," said NAR chief economist Lawrence Yun. "Sales easily could have been even 20% higher if there had been more inventory and more choices."

Residential construction is pushing hard to catch up to demand, as I said last week. Privately-owned housing starts in December were at a huge seasonally adjusted annual rate of 1,669,000, said the Census Bureau. This is 5.8 percent above the revised November estimate of 1,578,000 and is 5.2 percent above the December 2019 rate of 1,587,000.

Home sales are repeating their traditional role as a leading indicator with economic growth predicted to surge this year. Economists are now predicting a ‘V’ shaped recovery with Deutsche Bank increasing its GDP growth forecasts for 2021 and 2022, assuming the final fiscal aid package will be worth $1.6 trillion to $1.7 trillion, reports Reuters. “Their inflation numbers pushed a bit higher too with risks on the upside,” wrote Jim Reid, a strategist at the bank.

Reuters also reports Pimco, one of the world’s largest fixed income managers, said in a research note that the additional stimulus could “contribute to 2021 real GDP growth of over 7%,” a level not seen since “the great inflationary episode of the 1970s-1980s.”

Chief economist Yun expects more jobs to return in his press release, which will spur home buying in the coming months. He predicts existing-home sales will reach at least 6.5 million in 2021, even as he says mortgage rates are likely to inch higher due to the rising budget deficit and higher inflation.

But interest rates are still at recession lows, with the 30-year conforming fixed interest rate currently 2.75 percent with one origination point for the best credit holders.

With housing inventory at the end of January down 25.7 percent from one year ago, the unsold existing-home inventory sits at a record 1.9-month supply at the current sales pace, down from the 3.1-month amount recorded in January 2020.

All this news means the housing revival will continue.  What better sign is there of a consumer spending revival this year?

Harlan Green © 2021

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The Housing Boom Continues

 The Mortgage Corner

Calculated Risk

Total existing-home sales, https://www.nar.realtor/existing-home-sales, including single-family homes, townhomes, condominiums and co-ops, rose 9.4 percent from August to a seasonally-adjusted annual rate of 6.54 million in September.

The housing boom continues in the middle of the coronavirus pandemic. Overall home sales are up 20.9 percent from a year ago (5.41 million in September 2019).

"Home sales traditionally taper off toward the end of the year, but in September they surged beyond what we normally see during this season," said Lawrence Yun, NAR's chief economist. "I would attribute this jump to record-low interest rates and an abundance of buyers in the marketplace, including buyers of vacation homes given the greater flexibility to work from home."

That is one of the reasons for the surge—more well-healed, white collar buyers are working from home as the pandemic has accelerated the digital revolution, and a central work location is no longer needed.

Couple this with the upcoming 5G networks that will power more of everything—manufacturing, services, and online education, for starters. The World Economic Forum described what is possible with the wider band widths and faster speeds that 5G will bring to economic growth.

“Think about a world in which not just people but all things are connected: cars to the roads they are on; doctors to the personal medical devices of their patients; augmented reality available to help people shop and learn and explore wherever they are. This requires a massive increase in the level of connectivity.”

And it is exacerbating the existing housing shortage. Builders are playing catch up to this speeding up of the surge in demand.

Total housing inventory at the end of September totaled just 1.47 million units, down 1.3 percent from August and down 19.2 percent from one year ago (1.82 million). Unsold inventory sits at a 2.7-month supply at the current sales pace, down from 3.0 months in August and down from the more normal 4.0-month figure recorded in September 2019.

Builders are responding. U.S. single-family homebuilding raced to a more than 13-year high in September. The report from the Commerce Department showed single-family homebuilding jumped 8.5 percent to a seasonally adjusted annual rate of 1.108 million units last month. That offset a 16.3 percent decline in starts for the volatile multi-family segment to a pace of 307,000 units, said the National Association of Homebuilders (NAHB). Overall, housing starts increased 1.9 percent to a rate of 1.415 million units last month.

Homebuilding has advanced 11.1 percent year-on-year, with single-family starts surging 22.3 percent. Further gains in single-family home construction are likely, said Reuters, with building permits shooting up 7.8 percent to a rate of 1.119 million units last month, the highest level since March 2007. 

"Home sales continue to amaze, and there are plenty of buyers in the pipeline ready to enter the market," said Lawrence Yun, NAR’s chief economist. "Further gains in sales are likely for the remainder of the year, with mortgage rates hovering around 3% and with continued job recovery."

 

Forbes

Scarce inventory has been problematic for the past few years, according to Yun, an issue he says has worsened in the past month due to the dramatic surge in lumber prices and the dearth of lumber resulting from California wildfires.

Mortgage rates are helping to offset some of those high home prices, however. A 30-year conforming fixed-rate mortgage dropped to 3 percent in August and has averaged below 3 percent in the past few weeks, the lowest on record.

I said last week that the NAR also reports pending home sales for contracts closing in approximately two months are also surging, which will boost sales through the end of the year. Pending home sales in August continued to move upward, marking four uninterrupted months of positive contract activity. Each of the four major regions have experienced growth in month-over-month and year-over-year pending home sales transactions.

Harlan Green © 2020

Follow Harlan Green on Twitter: https://twitter.com/HarlanGreen

 The Mortgage Corner

 

Calculated Risk

Booming Realtors’ existing-home sales are showing there is a very severe housing shortage with record sales and a record low housing inventory. Calculated Risk says the for-sale inventory is down 18.6 percent year-over-year (YoY) in August. This is the lowest level of inventory for August since at least the early 1990s.

Forbes

Sales continued to climb in August, marking three consecutive months of positive sales gains, according to the National Association of Realtors®. Total existing-home sales, https://www.nar.realtor/existing-home-sales, completed transactions that include single-family homes, townhomes, condominiums and co-ops, rose 2.4 percent from July to a seasonally-adjusted annual rate of 6.00 million in August. Sales are up 10.5 percent from a year ago (5.43 million in August 2019).

Reuters said recently, “With single-family building permits extending their uptrend in August, we think new home sales may continue to improve as well.  We do think any further gain in August is likely to be much more modest, and our point estimate calls for an increase of about 2 percent, to an annual rate of 920K.  That would represent a YOY increase of 30 percent, the highest monthly reading since the end of 2006. The YOY increase increase in the median price of a new home stood at 7.2 percent in July, also a new high.

And new-home sales are also booming while builders struggle to catch up to the higher demand. New home sales jumped 14 percent in July to a nearly 14-year high.  It was the third consecutive monthly increase of that magnitude or larger. Can this last?

"Home sales continue to amaze, and there are plenty of buyers in the pipeline ready to enter the market," said Lawrence Yun, NAR’s chief economist. "Further gains in sales are likely for the remainder of the year, with mortgage rates hovering around 3 percent and with continued job recovery."

What is going on? We know the incredibly low interest rates are a factor. Also the Great Recession caused builders to literally stop building because of so much excess inventory frpom the busted housing bubble (foreclosures, etc.).

Housing construction actually fell some 80 percent over the past 10 years since the end of the Great Recession, and hasn’t yet caught up. We also have the Covid-19 pandemic that has temporarily reduced new household formation. The Federal Reserve said in a research note that from February to June, “This decline is of essentially the same magnitude as that seen over the entire Great Recession, and it corresponds to a drop in the number of occupied housing units—or an increase in the number of vacant units—of roughly 2 million.”

But that hasn’t slowed population growth. Forbes Magazine in a recent article said, “Scarred by the housing bust, homebuilders have been sitting on their hands for the past decade. Census Bureau data shows an average of 1.5 million homes were built each year since 1959. Yet over the past decade, just 900,000 homes have been built per year.”

What’s to be done? It can’t just be up to local governments with exclusionary zoning restrictions that NIMBYs use to restrict affordable housing in their neighborhoods.

In the 1980s, Congress established the Low Income Housing Tax Credit program to incentivize private developers to build affordable apartment homes and communities, reports USA Today. More than 3 million affordable units have been built under the program, and if Congress were to expand this program — as proposed in new bipartisan legislation (Affordable Housing Credit Improvement Act of 2019) — experts estimate that our country could create or preserve an additional 384,500 affordable homes over the next 10 years. 

There is much more that can be done on the national level. Record income inequality has made home ownership much less affordable for Main Streeters. There has been no movement to cure the problem, such as a national minimum wage, or to strengthen labor laws that would boost the income of working families.

There has to be a concerted national effort so reverse this trend, in other words, or the homeless numbers will continue to rise in everyone’s backyard.

Harlan Green © 2020

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Housing Market Will Survive Coronavirus

The Mortgage Corner

NAHB.org

What happens to housing with the COVID-19 pandemic? It had been on the road to recovery with record low interest rates; so much so that single-family housing starts have been soaring since 2019 as more millennials have formed families and entered the housing market.

But can this last? A recent LATimes survey of homebuilders showed that builders were continuing to complete projects and selling them online (sales offices have closed, so no onsite visits allowed for prospective buyers), but not starting new construction or buying new housing sites, until there is more certainty about the U.S. economy that could lose as many as 3 million jobs during the current downturn, according to some forecasts.

HUD estimates there were 1.5 million housing starts in February, The three-month moving average for single-family construction is currently at a post-recession high. Single-family starts increased 6.7 percent to a 1,072,000 seasonally adjusted annual pace in February. Multifamily starts for units in 5+ unit properties declined 17 percent to a 508,000 annualized rate after a strong yet unsustainable start for 2020 for apartment construction.

There’s a reason for the sky-high demand for housing, especially in California. Rents have soared 40 percent from 2000 to 2018, whereas incomes have risen just 8 percent after inflation, according to UC Berkeley’s Turner Center for Housing Innovation.

Surprisingly, housing may be one of those getting the most support from government—in part because there is already a severe housing shortage, which has put governments in charge of what has become the 1.3 million unit shortage of affordable housing for low income buyers in California, alone. California’hopes to mitigate the shortage with last year’s $6 billion housing bill to provide more affordable housing.

The Census Bureau just reported sales of new U.S. single-family homes are up 14.3 percent from last February. And January’s new-home sales were already at a 12-1/2-year high. It is pointing to housing market strength that could help to blunt any hit on the economy from the coronavirus and keep the longest economic expansion in history on track.

Calculated Risk

Builder confidence in the market for newly-built single-family homes fell just two points to 72 in March, according to the latest National Association of Home Builders/Wells Fargo Housing Market Index (HMI). Sentiment levels have held in a firm range in the low- to mid-70s for the past six months.

“Builder confidence remains solid, although sales expectations for the next six months dropped four points on economic uncertainty stemming from the coronavirus. Interest rates remain low,” says chief economist Robert Dietz, “and a lack of inventory creates market opportunities for single-family builders. However, down payment requirements are a limiting factor amid lower mortgage interest rates.”

But a housing market that remains healthy depends on a recovering economy, and we don’t know when that may be. Estimates run from 6 months to 18 months, if job loss estimates go to the 3 million extreme end of forecasts.

MarketWatch’s Jeffery Bartash reports a “flash” reading by the forecasting firm IHS Markit showed declines in its composite activity indexes. The manufacturing index slipped to 49.2 from 50.7, when anything below a reading of 50 indicates contraction. The flash service index sank to 39.1 in March from 49.4, marking the lowest level recorded since similar data became available in October 2009, IHS said.

“Although exports have suffered, most manufacturers continue to make necessary items, especially consumer goods for Americans stuck in their homes. Some large companies are even shifting production to help make critical medical equipment that’s in short supply,” said Bartash.

Why? Interest rates are plunging to new lows as investors rush to safe-haven bonds, driving down conforming 30-year fixed interest rates to as low as 3 percent.

This also caused refinance applications to surge more than 50 percent in a recent week, according to the Mortgage Bankers Association.

The housing market is in a holding pattern, in other words, with government aid a big factor, including directives not to evict renters behind in rent, or foreclose on homeowners behind in their payments for government-insured mortgages.

Harlan Green © 2020

Follow Harlan Green on Twitter: https://twitter.com/HarlanGreen

Housing Market (Still) Alive and Well

The Mortgage Corner

FRED-ICAP 

 
All is well with residential housing into this new year. Both housing starts and permits exceeded predictions, with starts now at 1.57 annual units, and permits at a 13-year high of 1.551 million units annualized.

Sales of new U.S. single-family homes raced to a 12-1/2-year high in January, pointing to housing market strength that could help to blunt any hit on the economy from the coronavirus and keep the longest economic expansion in history on track. The Commerce Department said new home sales jumped 7.9% to a seasonally adjusted annual rate of 764,000 units last month, the highest level since July 2007.

.

Why? Interest rates are plunging to now lows with what looks like a coronavirus pandemic that now effects at least 30 countries, including new cases in S. Korea and Italy. And there are fears it will spread further into Europe and the EU with its open borders.

There are now 60 cases of COVID-19 in the U.S., including among 45 people who were repatriated from the Diamond Princess and from Wuhan, China, the city that first detected the virus in December. Six people are counted as recovered in the U.S. Worldwide, there are now 82,549 cases of COVID-19, at least 2,810 deaths, and about 33,252 people, primarily in China's Hubei Province, have recovered, according to the latest figures.

The DOW Jones is has fallen more than 1,000 points and the 10-year benchmark Treasury yield has dropped more than 20 basis points from its recently stabilized yield to 1.37 percent as investors flee to save-haven bonds to protect themselves. This is causing mortgage rates to fall to new lows, as well.

Conforming mortgage 30-year fixed rates for those with the best credit and incomes, and with all closing costs paid by the lender, have fallen as low as 3.25 percent, and the super-conforming rate of 3.375 percent, which I have never seen in my 30 plus years as a Mortgage Banker.

But won’t a possible pandemic slow housing sales? Not according to the Conference Board’s Index of Leading Economic Indicators (LEI) that has a good record of predicting economic activity six months ahead.

The Conference Board Leading Economic Index® (LEI) for the U.S. increased 0.8 percent in January to 112.1 (2016 = 100), following a 0.3 percent decline in December and a 0.1 percent increase in November, said its press release:

“The strong pickup in the January US LEI was driven by a sharp drop in initial unemployment insurance claims, increasing housing permits, consumers’ outlook on the economy and financial indicators,” said Ataman Ozyildirim, Senior Director of Economic Research at The Conference Board. “The LEI’s six-month growth rate has returned to positive territory, suggesting that the current economic expansion – at about 2 percent – will continue through early 2020. (But) While weakness in manufacturing appears to show signs of softening, the COVID-19 outbreak may impact manufacturing supply chains in the US in the coming months.”

So even the Conference Board is hedging its predictions at bit. But manufacturing is just 10 percent of the U.S. economy these days, so who knows how much such a burgeoning pandemic with affect the U.S., in particular?

We do know that interest rates are plunging to new, historic lows, however. And even the Federal Reserve may be poised to lower their short term interest rates, should the economy show more signs of slowing.

And all of this prospective residential construction is underpinned by the urgent need to supply more housing; so much so that it has jump-started a new YIMBY (Not In My Backyard) movement to build more affordable housing near transportation hubs and city centers.

So we may never have a better time to provide more housing for a growing population. It also signals the demise of suburban sprawl, as we know it. The missing piece in this effort seems to be upgrading transportation networks, as I said last week, which need to be improved to better connect where we live to where we must work, if we want to solve our very serious housing shortage.

Harlan Green © 2020

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Housing Market Is Recovering

The Mortgage Corner

FRED

The just-released single-family sales graph highlights a very important fact. New-home sales—especially for single-family residences—are back to historical levels last seen in 2000. The Great Recession and oversupply during the housing bubble caused so much damage to home building that it has taken housing 10 years to recover.

This augers well for economic growth this year with a fully-employed economy and more younger homebuyers entering he housing market. So the question being asked is, has the home-ownership rate finally bottomed, so that it is now again on an upward trend?

Sales of new single-family homes in December were at an annual rate of 694,000, which is 23 percent above the December 2018 rate, reports HUD and the U.S. Census Bureau. Builders are finally catching up to the demand for more homes, in other words.

There are many reasons the housing recovery has taken so long—there are too few homes in the affordable range, for starters. Entry-level homebuyers (usually from the millennial generation) have been slow to form new households and pay down their college debts, so they are currently buying just 30-31 percent of existing homes, when their percentage has been closer to 40 percent in the past.

Builder confidence in the market for newly-built single-family homes has also increased five points to 76 in December off an upwardly revised November reading, according to the latest National Association of Home Builders/Wells Fargo Housing Market Index (HMI). This is the highest reading since June of 1999.

“Builders are continuing to see the housing rebound that began in the spring,” said the NAHB, “supported by a low supply of existing homes, low mortgage rates and a strong labor market. While we are seeing near-term positive market conditions with a 50-year low for the unemployment rate and increased wage growth, we are still underbuilding due to supply-side constraints like labor and land availability. Higher development costs are hurting affordability and dampening more robust construction growth.”

The average rate of new home sales in 2019 was 681,000, which was 10.3 percent higher than 2018’s pace. The median sales price for new homes was $331,400 in December, which was up from the previous month. The government estimated there was a 5.7-month supply of new homes available for sale, up slightly from November as well, and is now back to the average supply of new homes on the market before the housing bubble.

Calculated Risk

Calculated Risk’s Bill McBride has commented on the homeownership rate since the Great Recession, and believes it is also returning to historical levels, per his graph. It is back to 64.1 percent of households, about the average that has prevailed since the 1970s.

There is still a housing shortage, however, with more than 500,000 homeless living on the streets, according to the latest data. This is a sign that not enough affordable, entry-level homes are being built; which means that many of the younger generations will still not be able to afford to buy.

Harlan Green © 2019

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Full Speed Ahead for Housing Construction, Sales?

The Mortgage Corner

Wrightson.com

The ultra-low interest rates are making a difference as homebuilder sentiment is soaring along with new building permits, which should boost new and existing-home sales as well. For instance, more new homes on the market encourage existing-home owners to move up or downsize, depending on their age and family.

Builder confidence in the market for newly-built single-family homes increased five points to 76 in December off an upwardly revised November reading, according to the latest National Association of Home Builders/Wells Fargo Housing Market Index (HMI) released today. This is the highest reading since June of 1999.

This is making a small dent in the severe housing shortage since the Great Recession that has resulted in soaring rents and the current homelessness in communities that haven’t been building enough new housing.

“While we are seeing near-term positive market conditions with a 50-year low for the unemployment rate and increased wage growth, we are still underbuilding due to supply-side constraints like labor and land availability,” said NAHB Chief Economist Robert Dietz. “Higher development costs are hurting affordability and dampening more robust construction growth.”

All three components of that gauge -- present sales, future sales expectations and prospective buyers traffic -- improved, said Wrightson, but the biggest gain was a seven-point rise in current sales of new homes to a 21-year high of 84.  Regionally, the gains were more mixed, with the Midwest index improving sharply, the South rising marginally, and the West and Northeast declining.

Homebuilders also boosted construction on new homes in the U.S. at an annual pace of 1.37 million in November, the Commerce Department said today. This was a 3.2 percent (±10.0 percent) increase from a revised 1.32 million in October, 13.6 percent higher than a year ago.

And new building permits hit another post-recession high, up at a seasonally-adjusted rate of 1.48 million. That was 1.4 percent (±1.4 percent) above the pace of 1.46 million set in October and 11.1 percent above last year’s rate.

We know there is still a tremendous shortage of housing that came from the reluctance of builders to build for years after the Great Recession. Some of the shortage also came from Wall Street firms buying up housing abandoned from the busted housing bubble that were then turned into rentals.

A recent report by CBSN documented the carnage from the busted housing bubble and Great Recession. More than 9 million homes were foreclosed or sold at a loss after the bubble popped, leading to fears that tracts of abandoned neighborhoods would become "ghost towns."

This led government officials such as then Fed Chair Ben Bernanke to suggest foreclosed homes could be sold in bulk to private investors as rental properties. But that wasn’t enough, as there was very little government help to keep homeowners in their homes as happened during the Great Depression when the Home Owners' Loan Corporation (HOLC lent low-interest money to families in danger of losing their homes to foreclosure. By the mid-1930s, the HOLC had refinanced nearly 20 percent of urban homes in the country, allowing homeowners to stay in their homes with very lenient terms to enable them to weather the joblessness of the Great Depression.

“In the decade since the crash,” said the CBSN report, “7 million more households have become renters, while only 1 million more have become homeowners, according to Census data. And "institutional landlords," as the Wall Street investors are called, have become a major driver of the affordable housing woes many Americans are now facing—from steep rent payments all the way to eviction.”

The homeownership rate as a percentage of households that own vs. renting hasn’t recovered, dropping from its pre-recession high of 69 percent to 64.3 percent of households today. The U.S. has become a nation of renters at a time when rental rates are soaring due to the lack of new housing, resulting also in the more than one-half million homeless.

Another casualty of the Great Recession was lack of new household formation among the millennial generation children of the baby boomers who in fact outnumber their boomer parents; but alas, were without adequate available housing.

But now residential construction is beginning to meet the demand from new household formation that is back to the longer-term 1.2 million historical average, according to the U.S. Census Bureau. Millennials are paying down their college debt enough to move out of their rental or parents’ home, and forming more families.

There is more economic good news to report this week in upcoming columns. Industrial production has picked up in autos and trucks after the GM strike, according to the Federal Reserve, though not back to pre-recession levels. And job vacancies continue to soar with 1.4 million more vacancies than new job hires.

It means jobs are plentiful, so look for housing construction and home sales to keep this economic recovery afloat!

Harlan Green © 2019

Follow Harlan Green on Twitter: https://twitter.com/HarlanGreen

Consumer Confidence Is Boosting Housing

The Mortgage Corner

StLouisFRED

New-home sales are now back to the long term average in the above graph that dates back to the 1960s, and consumers are still reasonably confident of their future.

"Sales of new single‐family houses in October 2019 were at a seasonally adjusted annual rate of 733,000, according to estimates released jointly today by the U.S. Census Bureau and the Department of Housing and Urban Development. This is 0.7 percent below the revised September rate of 738,000, but is 31.6 percent above the October 2018 estimate of 557,000."

This was the first time since 2007 that the annual pace of single-family home sales remained above 700,000 for three consecutive months, according to Calculated Risk. New-home sales were nearly 32 percent higher on an annual basis in October.

This means that residential construction is also increasing the supply of new homes, as I said last week; at the same time as there is a significant housing shortage and housing construction isn’t yet back to historical levels.

Conference Board

Whereas, “Consumer confidence declined for a fourth consecutive month, driven by a softening in consumers’ assessment of current business and employment conditions,” said Lynn Franco, Senior Director of Economic Indicators at The Conference Board. “The decline in the Present Situation Index suggests that economic growth in the final quarter of 2019 will remain weak. However, consumers’ short-term expectations improved modestly, and growth in early 2020 is likely to remain at around 2 percent. Overall, confidence levels are still high and should support solid spending during this holiday season.”

So, although consumer confidence is down a bit from last year, it is still enough to cheer consumers for the holidays.

I said I was also going to say something about interest rates trends last week. We only have to look to Japan and the EU to see that U.S. interest rates could continue downward; but only if our government doesn’t step in with public investments that are sorely needed—such as in our energy network, infrastructure, education, environmental protection and the like that we have been discussing ad nauseum.

As of now, the opposite is true. Republicans rammed through tax cuts that have run up a $1 trillion dollar annual deficit. But the windfall went into corporation profits rather than into public spending programs that would have produced more productive workers and sustained growth.

It meant that financial engineering has created a huge savings glut—both here and in Europe—that is driving down interest rates to zero or below. EU countries are so desperate to put their excess savings to work that they are willing to pay investors to use their savings with negative interest rates. The same could happen here if we don’t find a way to use those savings productively.

This came out of so-called austerity measures in an overreaction to the Great Recession. Conservative ‘austerians’ as they were called worried more about budget deficits than investments that would stimulate more spending by domestic consumers and businesses that would in turn boost future growth.

This is what happens with the savings glut we have now. Too many policymakers and investors are obsessed with saving—in fact, hoarding wealth—rather than putting it to productive use that would lower public debt over the long term.

Though it’s really rational financial behavior when individuals hold on to savings for a rainy day. But that’s not the case for governments that won’t spend what’s needed for the future. It will bring on the rainy days sooner. Lord John Maynard Keynes knew it in the 1930s. He was the creator of Keynesian economics and a government that gave us the New Deal.

Harlan Green © 2019

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