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Homeownership is supposed to be the American Dream. As American as baseball, Fourth of July fireworks and fresh-baked apple pie.
But maybe not anymore, at least not to a new generation of Americans! Instead, these “Millennials” born in the early 1980s are shunning the market amid concerns about future financial stability, rising expenses and excessive debts. And who is increasingly filling the housing demand hole? Foreign investors, led by cash-rich Chinese buyers!
At least, that’s the conclusion of a fascinating pair of stories I came across today. One, from Bloomberg, bears the title “Daughter Doesn’t Buy Dad’s Cheering of U.S. Homeownership.” The other, from Housing Wire, leads with the headline “China Set to Dominate Foreign Homebuyers Market.”
First let’s look at homegrown buyers, and why they’re increasingly hesitant to buy. Bloomberg profiles Sara Stevens, the 27-year-old daughter of the Mortgage Bankers Association’s CEO. Though she is engaged to be married, and she and her fiancé have a six-figure income between them, she’s choosing to rent rather than buy.
|Cash-rich Chinese buyers are flocking to the U.S. home market.|
Why? Here’s Bloomberg’s conclusion:
“Six years since the collapse of Lehman Brothers triggered a financial meltdown, some young adults are more risk averse and view the potential upsides of status and wealth more skeptically than before the crisis, altering the homeownership calculation. It’s more than the weight of student loans, an iffy job market and tight credit — even those who can buy are hesitant.”
Some other fascinating stats from the piece:
- First-time buyers accounted for just 27 percent of May sales, far below the long-term average of about 40 percent.
- Only 52 percent of Millennials in one poll said homeownership is an “excellent long-term investment.”
- Three-fourths of them believe the U.S. housing crisis hasn’t gone away yet, even though it’s been nine years since the peak of the bubble and almost six years since the depths of the Great Recession!
I talked about some of the issues related to the evolving attitudes toward housing in early May here in Money and Markets. And I discussed the Millennials’ student debt challenges in a separate column.
Suffice it to say these are not easily solvable. All the zero percent interest rates and QE in the world can’t change the psyches of potential buyers. Nor are they doing anything to curb the explosion in student loan debt. And that’s yet another reason why I believe the Federal Reserve’s policies are a waste of time and effort, and come with way too many negative side effects to continue pursuing.
But even as many Americans are finding the American Dream harder to pursue (or not worth the effort), foreign buyers from places like China are increasingly stepping in.
Housing Wire notes that foreign buyers purchased just over $92 billion worth of U.S. real estate in the year ending in March, up sharply from $68 billion a year earlier. A whopping 60 percent of them paid all cash, compared to one-third of domestic buyers.
“All the zero percent interest rates and QE in the world can’t change the psyches of potential buyers.”
Chinese buyers spent $22 billion of that total, the largest percentage by dollar volume. They now account for 16 percent of all foreign purchases, triple the level of just a few years ago. We’re still talking about a fraction of the overall volume of home sales here, mind you. But it’s the trend that’s noteworthy.
So what’s your experience? Have you been a home buyer or seller lately? If so, have you had to go up against cash-rich buyers and had a hard time as someone who is buying with a mortgage instead? Have you benefitted from an influx of foreign cash?
What about family members? Do you have kids or grandkids or nephews and cousins between the ages of 18 and 35? Are they having trouble buying a house, or choosing to rent even when they can buy? Let me know in the comment section.
|OUR READERS SPEAK|
While the European markets take a temporary breather from the week’s chaos, it’s a good time to review what you have to say about what’s going on.
Reader Fred said he thinks the European problems are very similar to what we’ve seen in the past. Not the recent past, but several decades ago! His comment: The “PIIGS slide is deflationary. Banks are VERY weak and many will collapse soon. Europe started the trouble in the late 20s. They are starting it again.”
But as for what it means for the currency markets, it looks like opinions diverge. Reader Rob J. said: “You’re on the right track buying dollars, the euro finally falling. All that money in Europe that needs a home should end up in the USA. Since Europe is very unstable at this time, watch DXY go up.”
DXY is short-hand for the Dollar Index, which tracks the dollar’s performance against a basket of foreign currencies. You can track its performance at various financial sites using different naming conventions. At Stockcharts.com, for instance, you would use the ticker symbol “$USD”.
But Reader Bernard took issue with my recent comments about the euro, claiming that fundamentals, money flows and other factors support its value. He cited a two-year chart and how the euro has risen in that time frame.
My response? I guess it all depends on your time frame. Yes, in the last two years, the euro has climbed. But it’s far, far off its peak of around 1.60 in 2008. It has also made four straight lower highs on a weekly chart since then, and appears to be rolling over.
Finally, my precise “buy” and “sell” recommendations can be found in the Safe Money Report. I didn’t have a position in the euro for a long time until April, as much as I disliked its long-term outlook. But the position I added then is already showing modest open gains, and should have a very bright future if I’m right.
So if you want to get those concrete signals, rather than just general commentary, I’d love to have you on board! Just click here. Regardless of whether you or anyone else here takes that step, please do continue to share your opinions — even when you disagree with me! — at the comment section
|OTHER DEVELOPMENTS OF THE DAY|
As I noted earlier, European markets calmed down a bit overnight, following the stock and bond collapse at Portuguese lender Banco Espirito Santo and related companies. But the respite may prove fleeting because none of the underlying, fundamental problems there have been solved. The Wall Street Journal has a bit more on that topic here.
Tensions continue to flare in Ukraine, with more than 100 soldiers and border guards killed or injured in renewed fighting in that country’s eastern region.
The escalation in fighting between Israel and Hamas continued overnight. A Gaza-fired rocket managed to hit a gas station in the city of Ashdod, causing serious injuries, while Israel hit more than 100 sites in Gaza from the air. Unknown enemies also fired rockets from Lebanon for the first time.
The first of the mega-banks reported earnings today. Wells Fargo & Co. (Weiss Ratings: WFC, A+) said second-quarter profit rose 3 percent to $5.42 billion, or $1.01 per share, from a year-earlier. But revenue fell slightly to $21.1 billion. Mortgage banking profit also tanked 39 percent, while a key measure of core lending profitability called net interest margin sank to 3.15 percent from 3.47 percent.
In other words, nothing too exciting or inspiring. Banks remain mired in the muck thanks to a lackluster mortgage market, regulatory challenges, multi-billion-dollar fines, and more.
Reminder: You can let me know what you think by putting your comments here.
Until next time,