Existing home sales for July are out and … they are at the highest since February 2007.
However, mortgage purchase applications, average wage growth and real median household income are all lower than in February 2007. In fact, mortgage purchase applications are 49% lower than in February 2007 and average wage growth is 42% lower than in March 2007.
Talk about divergence! If traditional borrowers aren’t driving the rise in existing home sales, who is? Not owner-occupants. As RealtyTrac points out, the share of homes sold to owner-occupants dropped to a new low in Q1 2015.
Low interest rates courtesy of The Fed have certainly helped investors!!
So, will The Fed raise rates in September, despite all the negative economic news? According to Fed Funds Futures data, there is only a 36% of a rate increase to 0.50%. Although there is only a 10% chance of that.
Where have I seen this graph before?
The “good” news for the USA is that inflation (as measured by the Consumer Price Index) only increased 0.2% in July. This is a continuation of a general decline in inflation.
But why does it feel like there is inflation? The Chapwood Index (the unadjusted actual cost and price fluctuation of the top 500 items on which Americans spend their after-tax dollars in the 50 largest cities in the nation) is over 11% in several large urban areas like Long Beach and other California cities, as well as Washington DC. New York City missed the 11% barrier, but clocked in at 10.9%.
NOW I know why it feels so expensive in New York City and Washngton DC — because it is!
But wait! Oil prices are falling (West Texas Intermediate Crude Oil Price Futures are down below $42), so that should provide so relief, no?
Well, not as much relief as one would hope. Crude oil prices are falling faster than gasoline prices at the pump.
Even if you believe the CPI numbers, housing (shelter) grew faster than other commodities. The indexes for rent and owners’ equivalent rent both increased 0.3 percent, while the index for lodging away from home increased 2.5 percent after falling in May and June.
Falling oil prices (glut or global recession?), report inflation of 0.3% MoM, actual inflation in California of over 11%.
It’s a gusher! (of inflation!)
According to the US Census Bureau, 1 unit housing starts rose 13% in July.
Now 1 unit housing starts are back to 1991 levels!
On the other hand, multifamily (5+ unit) starts plunged 17% in July.
The biggest loser is the Northeast where starts plummeted by 27.5%. The Midwest rose 20%, likely because the Cleveland Cavaliers basketball team went to the NBA finals against the Golden State Warriors.
New York let their property tax breaks expire and the entire Northeast saw a 60% decline in housing permits.
The residential construction industry is slowing getting back on its feet after the disastrous housing bubble burst in late 2007 and 2008.
China’s exports plummeted by 8.3% in a recent report, fueling speculation of more easing from China. This is a continuation of a long-term trend from 2010.
Since Australia is dependent on exports to China (primarily of raw materials like iron ore), a downturn in China is going to be painful … for Australia.
Here is the Aussie dollar compared to the Chinese Yuan.
Just like in the USA, enter the Central Bank of Australia! with rate lowering, just like the US Federal Reserve.
Like the USA, Australian wage growth has slumped.
And Australia has a housing bubble, just like the USA … except that Australia’s housing bubble hasn’t exploded yet. Australian home prices are up 42% since Q1 2009.
Rising home prices and declining wage growth. A page straight out of the USA playbook.
In a global economy, both the US and Australia suffer when China contracts. Australia is starting to look more and more “Americanized” with low wage growth and an active Central Bank. Good luck with that, mates!
There is only one thing to do! Open a Castlemain XXXX and put the shrimp on the barbie.
Living in the USA has never been less affordable, according to Zillow.
Americans living in rentals spent almost a third of their incomes on housing in the second quarter, the highest share in recent history.
Rental affordability has steadily worsened, according to a new report from Zillow, which tracked data going back to 1979. A renter making the median income in the U.S. spent 30.2 percent of her income on a median-priced apartment in the second quarter, compared with 29.5 percent a year earlier. The long-term average, from 1985 to 1999, was 24.4 percent.
Rental affordability worsened from a year earlier in 28 of the 35 largest metropolitan areas covered by Zillow. Rents were least affordable in Los Angeles, where residents devoted 49 percent of monthly income to rent. The share in San Francisco was 47 percent, 45 percent in Miami, and 41 percent in the New York metro area.
This is not that surprising when you consider that the CPI Urban Consumers Owners Equivalent Rent of Residences is growing at a slower pace YoY than average wage growth.
And homeownership rates keep on falling.
Effective rent growth has been climbing but is expected to decline in 2016.
San Francisco leads the nation in effective rent growth for 2015 with Oakland, Seattle and New York following closely.
The Mortgage Bankers Association released their weekly survey of mortgage applications.
The good news? Mortgage purchase applications are UP 20% YoY!
The bad news? Homeownership rates dropped from Q2 2014 to Q2 2015 by 2%.
In fact, the homeownership rate looks in a free fall.
Another bit of good news is that mortgage refinancings rose with the recent decrease in mortgage rates.
When I see homeownership rates rising again, I’ll feel a whole lot better.
Well, the Federal Reserve Chair Janet Yellen didn’t exactly say the famous line from the Humphrey Bogart/Tim Holt film Treasure of the Sierra Madre, “We don’t need no stinking wage growth.” But according to the Wall Street Journal’s Jon “The Omen” Hilsenrath,
“Ms. Yellen said explicitly in that March speech that she is prepared to start moving interest rates up even before she sees sure signs that wages are rising faster. “That said,” she added, “I would be uncomfortable raising the federal funds rate if readings on wage growth, core consumer prices, and other indicators of underlying inflation pressures were to weaken.”
Given her stance, Friday’s employment cost report doesn’t look like a deal breaker for the Fed in its long-running debate about when to raise short-term interest rates. Wages appear to be stagnant but not clearly weakening, which is what she set out as her threshold for not acting. Still, it creates new doubts for officials and doesn’t help them build the confidence they’re hoping to build that the job market is nearing full employment and inflation rising toward 2%.”
True, the Employment Cost Index is at an all-time low. But the percentage of people NOT in the labor force is now 37.3%.
The NOT in labor force rate is the number of those NOT in the labor force divided by the sum of those in the civilian labor force and those NOT in the labor force.