Things aren’t that bad now. But affordability is definitely getting worse, according to a fresh study from RealtyTrac. The firm analyzed 456 U.S. counties, taking into account data on local wages, home prices, and mortgage rates to figure out whether housing is generally affordable or not.
Roughly 9% of U.S. counties are less affordable than their historic average now, up from 2% a year ago. Roughly two-thirds of U.S. markets also are seeing price appreciation that easily outpaces wage growth. That means the percentage of unaffordable markets is poised to rise further, especially if mortgage rates climb.
The least affordable markets include the high-tech hub of San Francisco, where “unicorn” money had been raining down on residents until a few quarters ago, and New York City, where Russian oligarchs, wealthy Chinese, and other foreign buyers have been stashing money in recent years. The monthly mortgage payment on a median-priced home in those metropolitan areas would consume as much as 120 percent of an average wage-earner’s income! A smattering of counties in locations as diverse as Baltimore, Maryland, and Birmingham, Alabama, had the most affordable homes.
|The high-tech hub of San Francisco is among the least affordable markets.|
What’s driving the trend? Lending standards have eased somewhat in the past few years, even as they remain much tougher than they were at the peak of the housing bubble in 2005. The overall economy has improved, albeit not in dramatic fashion. And investors have flocked to real estate as a yield vehicle in this era of low interest rates. That’s particularly true in some East and West Coast markets, which have also attracted large amounts of foreign money.
If there’s any good news, it’s that affordability is nowhere near as hideous as it was in the bubble days. Plus, the massive turn in the credit cycle is likely to drain more “hot money” from real estate. That should cause price growth to deflate, making homes more affordable again for “core” buyers.
|“We’re likely to see the recent bounce in home-builder shares peter out.”|
When it comes to the investment implications of the news, I think we’re likely to see the recent bounce in home-builder shares peter out. I also believe some of the housing suppliers, and apartment Real Estate Investment Trusts (REITs), look vulnerable. So if you’ve caught a bounce in the likes of Whirlpool (WHR) or AvalonBay Communities (AVB) or the SPDR S&P Homebuilders ETF (XHB), this could be a good time to sell.
Do you own those stocks, or others like them? If so, are you looking to buy more or sell here? What do you think the implications are of declining affordability for the U.S. economy and the housing market? Let me know!
In the last couple of days, my colleagues and I have written about everything from currency trading to terrorism to inflation — and several of you responded with your own opinions.
With regards to the horrific events in Belgium, Reader hedy4321 said: “I have already canceled a European cruise for this summer. Europe’s counterterrorism plans don’t work for a number of reasons.
“First, they don’t trust each other. Second, they don’t coordinate with each other. Third, they don’t speak the same language. Fourth, they don’t have the same political structures. Finally, the terrorists are now part of the local community. How are you going to root that out? Answer? You can’t. Countries that do not control their borders are doomed to fail.”
Reader Jim also weighed in, saying: “When a half-dozen people can shut down whole cities and countries, I don’t see where there is really much we can do about it. Belgium has been a virtual police state since the Paris attacks. The perpetrator lived openly there for four months, and they were completely unable to stop this attack. I don’t know if there is an answer.”
On central banking and economic policy, Reader Anthony G. said: “The borrowing capacity of central banks is not infinite. The projects the capital is used for are nonproductive. The crony system shows that clearly.”
As for the inflation/deflation debate, Reader Chuck B. said: “The cost of LIVING is rising, while deflation takes hold in financial circles. There is a dichotomy here, and it will someday be resolved – probably to the pain of most of us, with higher prices and lower earnings, followed by a crash in everything.”
And Reader Joey said: “While deflation may be happening in the financial world way of accounting, in the real world and especially in British Columbia, Canada, we are being eaten alive by INflation. Not only for food, medicine, taxes and the rest, but also for a place to live. Our property values continue to fly higher to such a point that no longer can a “native” Canadian afford shelter.”
Thank you for sharing. We’re clearly facing heady inflation for things we have to buy – health insurance, housing, food, and so on. But as Chuck B. notes, financial asset deflation is a serious threat, one that should only get worse with time. That’s why safe, higher-yielding, lower-volatility stocks in sectors like consumer staples and utilities are leading this market, while other sectors are lagging.
Anything else you want to add, or that I haven’t covered here yet? Then hit up the discussion section here at the website and fire away.
The woes in manufacturing continued last month, with durable goods orders falling 2.8% in February. A separate “core” reading of business spending fell 1.8%, more than three times the 0.5% decline that was expected.
European intelligence agencies need to cooperate more effectively if attacks like those in Paris and Brussels are to be prevented, according to many analysts. Turkey revealed that it deported one of the Belgian attackers to the Netherlands in 2015, warning both the Dutch and the Belgians that Ibrahim el-Bakraoui was probably a jihadist. But officials apparently didn’t capitalize on that information.
The U.S. and Turkey remain at loggerheads about how to shut down the flow of ISIS-trained terrorists from Syria to Turkey and on to Europe. The U.S. wants Turkey to allow Kurdish fighters to help secure the Syria-Turkey border.
But Turkey’s government has been battling Kurdish separatists for a long time internally, and isn’t going along with the plan. It wants the U.S. to help create a “safe/no-fly zone” in Syria so fewer refugees flee the fighting. However, the Obama administration sees that as impractical.
What are your latest thoughts on the terrorist attacks in Europe, and the lack of effective intelligence gathering and sharing? How about the economy? Will the manufacturing sector continue to suffer in 2016? Let me hear about it in the comment section below.
Until next time,