Housing Nirvana Alert! New Home Sales Fall To 1991 Levels

The numbers today on new home sales were pretty grim. In fact, new home sales fell in March by 11.4 percent.


In fact, new home sales fell back to 1991 levels.


Given the relatively poor recovery of wage growth and real median household income, it is not that surprising.


Now, it is true that new home sales in the frozen Northeast fell by one third. But to put that number into context, new home sales since early 2008 have been poor. So the 33.33 percent decline is not demonstrably different than other monthly new home sales since early 2008. But it is always fun to blame global warming. cooling.


Speaking of cold places, here is a photo of “Meals on Wheels” in Alaska.


America’s Secular Stagnation And The Lack Of Middle-class And Housing Recovery

I will be speaking in Washington DC tomorrow discussing the state of the housing recovery along with Nobel Laureate Robert Shiller and other economists and industry leaders. “Economic and Policy Forum: State of the U.S. Housing Market” forum scheduled for Tuesday in Washington, D.C. starting at 9:30 a.m. E.T.. April 21, 2015.


I will be mentioning the problem of “secular stagnation” facing the USA. Despite The Federal Reserve’s historic intervention in financial markets, potential real GDP growth keeps dropping.

secular stagnation GDP_0

And despite the massive expansion of The Federal Reserve’s balance sheet, average wage growth is low and real median household income is still below 2007 levels.


I am sure someone will mention “credit is too tight” for which I will respond “No, it isn’t.” Just look at the chart of average wage growth (nominal) and real median household income. Lower wage growth and real median household income helps explain the lack of housing starts.


While some speakers will undoubtedly tout the major recovery for the remainder of 2015 after the abysmal Q1 GDP (according to The Atlanta Fed’s GDP NOW real-time tracker), the long-term prognosis is weak (according to The Fed’s potential real GDP growth.

gdpnow-forecast-evolution (10)

This is secular stagnation, folks. Real GDP and wage growth are expected to be laconic going forward. On the other hand, there are economists who are forecasting a significant recovery.

And with cash sales making up 39 percent of all home sales in January 2015, there just isn’t a recovery for the middle-class.


Affordable? Home Rents Increase To 2.7 Percent YoY While Wage Growth Is 2.1 Percent YoY

I attended Fannie Mae’s Affordable Housing Advisory Council meeting on April 15th as a member. We were asked not to disclose what was discussed, but suffice it to say that the name “Affordable Housing Council” kind of gives it away.

In general terms, the “credit is too tight” theme was discussed by affordable housing advocates (not Fannie Mae management). Needless to say, I chimed in with the following chart showing that potential borrowers are worse off today than in 2001 or 2007 making it difficult to qualify for a mortgage according to DEBT TO INCOME (DTI) requirements in the face of rising home prices.


But that only addresses the home ownership part of Fannie Mae’s business. What about their multifamily operations?

Well, the Consumer Price Indices for March were released today and the US CPI Urban Consumers Owners Equivalent Rent of Residences YoY rose to 2.7 percent. While this seems modest, bear in mind that average wage growth is only 2.1 percent YoY.


Then we have New York Ciy where The median rent in Manhattan jumped 8.9 percent last month to $3,375, according to a report Thursday by appraiser Miller Samuel Inc. and brokerage Douglas Elliman Real Estate. Costs for studio apartments climbed 10 percent to a median $2,351, while rents for one-bedrooms rose 9.4 percent to $3,400, both the highest in more than seven years of record-keeping.

Nationally, apartment rents are growing at a 3.5 percent clip, according to REIS.

Let’s see. Super low interest rates combined with investors (foreign and domestic) coupled with households that are priced out of home ownership have created … high rents. If Jimmy McMillan of “The rent is too damn high Party” would run for mayor or governor today ….

So, Houston (or Washington DC), we have a problem. The CPI measure of “rent” is too low compared to observed rents. Home prices and apartment rents are rising faster than wages. Either wages have to start rising more than they have or home prices (and apartment rents) have to drop.

Here is what COULD cause home prices to fall. Baby-boomers are retiring and the GenXers and recent immigrants from Latin America don’t have the accumulated wealth or wages to purchase some of mondo-expensive big homes that America has grown accustomed to.

So, only mentioned my concerns about the housing market, wages, and the baby-boomers.

Or what I may call “Baby KABOOMERS.”

Here is a picture of Janet Yellen and Ben Bernanke injecting a typical renter with Fed stimulus that helps rents to rise and wage growth to stagnate.