You probably remember what it was like trying to buy a house in the early to mid-2000s. Bidding wars. Soaring prices. Lines 100-200 deep to buy tract homes far out in the Las Vegas desert … or condos overlooking the Atlantic Ocean in Miami Beach.
Market Roundup
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.
Its conclusion?
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.
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| 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!
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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.
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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,
Mike Larson
Recommended Articles by Mike Larson:
Mike Larson graduated from Boston University with a B.S. degree in Journalism and a B.A. degree in English in 1998, and went to work for Bankrate.com. There, he learned the mortgage and interest rates markets inside and out. Mike then joined Weiss Research in 2001. He is the editor of Safe Money Report. He is often quoted by the Washington Post, Reuters, Dow Jones Newswires, Orlando Sentinel, Palm Beach Post and Sun-Sentinel, and he has appeared on CNN, Bloomberg Television and CNBC.
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It is only a matter of time before we have another attack here in the U.S. There are not only foreign nationals here that are planning attacks, but even more frustrating is the fact that we have native born Americans that have some “screws loose”. Did we forget Tim McVey and the Oklahoma bombing? When we have people in this world that are either mental, or radicals, have no fear of the REAL God, have no respect for human life, could care less if they kill even women and children, then we will see an increase in bombings and other types of attacks. Sadly, this will continue until we see love for each other and help for everyone in this world that needs help by all governments, and an end to tyranny by leaders of radical states.
In the meanwhile, each and every one of us needs to also be the eyes and ears for anything that appears suspicious, as the police and government officials cannot possibly be everywhere and see everything.
We have almost no attacks to speak of anywhere, and everyone is screaming the sky is falling, when there is no reason. This is more citizen control by terrorism propaganda by governments wanting to control it’s populations.
I’m sure this is not dissimilar to the “Indian” problem that early American settlers faced. The winner will be the one with the most guns and the most will to remove the threat.
I don’t see any similarity in the comparison you draw. None at all.
There was no “Indian problem”.. the problem wasthat the Native American did not have proper border control..to stop the savage, barbaric hordes from Europe from entering the country, stealing the land, raping the women and killing old men and children. Shameful.
99% of all terrorist attacks are carried out by government intelligence agents. OKC bombing was well known because Carolyn Howe was an informant who told FBI it was going to happen. 911 was an inside job as well as the spain train and london bombings. The first WTC attack was carried out with material support from the FBI. ISIS is a CIA creation. Funded and invented just like AlQuida.
Too much smoke there.
My gut feeling tells me we need to get the good people of the Muslem faith to help root out the few bad guys. We hear that it’s not the real Islam that is being demonstrated , so I think it’s about time they police themselves or the whole group is in for a lot of problems ..
There is apparently limited desire in that community to help fight the Jihadis. The U.S. Attorney for MN said last year that MN had provided dozens of fighters for ISIS. Interviews with these Muslims in the street indicate that they want Sharia law here.
http://www.wnd.com/2015/05/minnesota-muslims-brutally-honest-we-want-shariah/
There is also the problem of demographics. The average European family has one child, while the Muslims have four or five. Add to that the hundreds of thousands of immigrants and it’s almost inevitable that Europe will become a province of the Caliphate. Secularism features a weak and divisive society that is easy prey for hardline totalitarians like ISIS. We see it here too. We are allowing our national identity to slip away in favor of multiculturalism,just like them, which weakens a society, The West is in real trouble and the majority of its citizens don’t have a clue. Our President doing the wave at a baseball game with a Cummunist dictator and the tango with an Argentine concubine while Europe burns us all you need to see to get the picture. Jim
I tend to agree about the demographics, Jim. On the other hand, America grew great by taking important elements from other cultures and making them available to all of us. The problem is, we are now exposed, especially, in the media, to so much of the negative elements of all cultures, with no guidance as to what might be good to adopt. The negative often looks attractive from a superficial angle, and media and educational institutions don’t give people much real guidance. Religious institutions and schools could do, but often tend to preach at people, rather than really inspire thinking. Maybe that is one problem Muslims have .
There is, after all, only ONE real moral principle: BEHAVE TO OTHERS, THE WAY YOU WOULD LIKE THEM TO BEHAVE TO YOU. If everyone did that, we would be a long step toward Paradise on Earth. I know I don’t always succeed, but at least I try.
This is correct Jim, as I can attest from having in the past lived in countries where the natives complain about minority Muslims pushing their own internal unlimited population growth. The aim appears to be to increase influence by increasing numbers from within. This is not new practice and the results are starting to show in more and more places around the world.
By the way, consider the effect that the additional generations can have on population growth when people get married in their teens instead of late twenties and thirties. The tree has many more branches and many more leaves over the same period of time.
Furthermore, consider the offset of losing warriors when survivors can have more than one wife and brothers take care of the family of their lost brother.
Well said.
I agree. This is true of any political/religious group when it is taken over by radicals. The decent people need to exercise control, or the radicals might cause the destruction of the group – either from outside, or from inside as decent people adopt a different way of thinking and acting. That can take generations, however, and we may not have time for internal change. We may need to do it the way American, British, Australian and other troops and sailors did for the Japanese radicals in the 1940s.
Mr John C .. you hit the nail on the head…
terrorists were funded in Pakistan to fight the Russian…its these scum that are now wrecking havoc … also there are funded by the Saudis..your Allies.
The Muslims living a non-Muslim country, even if they originally entered that country by means of forged documents, are considered to be living in their adopted country under a covenant. They must, therefore, comply with the laws of their country of residence without, at the same time, disobeying Islamic Law.
Allah says: “Oh you who believe! Fulfill (your) obligations.†[Sûrah al-Mâ’idah: 1]
He also says: “And fulfill (every) covenant. Verily! The covenant will be questioned about.†[Sûrah al-Isrâ’: 34]
He says: “And fulfill the Covenant to Allah when you have covenanted, and break not the oaths after you have confirmed them.†[Sûrah al-Nahl: 91]
A Muslim is not to break or violate oaths or promises. He will not be a true faithful Muslim if he does so. Allah Said: “It is not the case that every time they make a covenant, some party among them throws it aside. Nay! The truth is most of them believe not.†[Sûrah al-Baqarah: 100]
Among the characteristics of a hypocrite is that he: “…acts treacherously toward covenants (pledges), and when entrusted he betrays.â€
Scholars have stated that those who enter non-Muslim countries have to adhere to their respective laws and regulations even if they entered those countries illegally, and they have no excuse for breaking those laws, since they were entrusted to abide by those laws upon entry into those countries.
The eminent Hanafî jurist, Mohammad b. Hasan Al-Shaybânî writes [Biographies (2/6)]:
If it happens that a company of Muslims pass through the enemy’s front lines by deceptively pretended to be messengers of the Muslim’s Caliph carrying official documents – or if they were just allowed to pass through the enemy lines – they are not allowed to engage in any hostilities with the enemy troops. Neither are they entitled to seize any of their money or properties as long as they are in their area of authority. This also applies in case of being truly trusted by the other party.
Accordingly, we conclude the following:
Muslims living in non-Muslim countries have to comply with laws and regulations of the country they have been entrusted though valid visas to enter. At the same time, they have to avoid whatever contradicts Islamic teachings. In case they are obliged by law to uphold something contrary to Islamic teachings, they have to adhere to the minimum that the law requires of them.
One of the best approaches for a Muslim living in these countries is patience. As long as he agrees to live in a non-Muslim country, he is never to rebel against the inhabitants of his choice of residence, even it seems to hard for him to endure.
By that standard, Ace, all those Muslim terrorists are violating or sinning against Allah. I guess they will never get their share of virgins in heaven, after all.
would be bad for trump to ban good muslims, eh?
The latest attack was a strike at the heart of European Liberalism. Brussels is the headquarters of NATO and the European Union. It’s a bureaucratic paradise. When you can’t defend your capital, you lose. The Airport and the Metro should be secure if anything is. Political Correctness may be their undoing. For instance, London police arrested a man for asking a Muslim woman what she thought about the attacks. They’re toast. Jim
the world seems to have lost all common sense.
Investors desperate for yield have bought up available housing stock. There is little inventory here in Seattle. It doesn’t matter how low the mortgage rates are if there is nothing to buy.
check out ticker NLY for a reit with a 12% yield and upside potential.
Look the biggest reason for the housing bubble happening is low interest rates . There are other factors but this is the largest …we have been through this before.. I experienced this act ..
Ends badly
Bubble was created by easy credit. Affordability became minor to appraisal the major determination.
theres the rub. they cannot police themselves because their doctrine is that of the Borg, assimilate or destroy. Have you not seen the Christians slaughtered all over the middle east and africa? It is a mid-evil retro-grade doctrine. Who wants that infecting our weak minded citizens? There is zero to be gained by admitting any more.
You need to read about the exploits of the Christian Catholics invading, murdering, stealing and “converting” the Central and South American people in the name of your god… Muslims are small potatoes by comparison…
Failed US foreign diplomacy Failed Strategies failed Government fiscal & economic policies can only lead to chaotic world order & businesses. What other options do these scumbags have in store for the citizens NONE.
The only way any of the nasty stuff going on in the world today is going to be defeated is when we all recognise that Jesus Christ is Lord of all.Love will always vanquish evil.If we consider ourselves to be creations of God then we must see these wrong doers as the same,Jesus died for all,not a select few.We need to beware the brainwashing of governments and the secular media,who like to control by fear.
The agnostic/atheist media has no religious reference, so they don’t react to a religion that promises 70 virgins for killing infidels, that encourages the beheading, terrorizing, driving out or extorting high taxes for non-believers. All religions are the same, right? When did Jesus tell us to harm anyone? I am afraid that these murderous attacks will continue until the sheeples finally conclude there is something wrong with this population,generally, and that open borders cannot continue when historically countries have had barriers to immigration for the safety of its citizens. A country should be under no obligation to admit peoples who believe in an alternate governmental system.
When Jesus was offered the armies of the world he refused them. Their guy accepted the offer. Jim
You’re not comparing Jesus to “their guy” are you? I very much doubt “their guy” wandered in the desert for 40 days and 40 nights without food or drink. It’s at that point that Jesus refused the power and all the riches of the world, not to mention food and drink. He wasn’t about to succumb to Satan’s temptations. But your comment was a bit clever, I have to admit.
I can’t yet focus on the economics of housing because I’m still waiting for the Big Reversal (2/3/15), the once-in-a-generation opportunity in the energy sector (4/15/15, 5/4/15, 5/18/15) and Bloody Wednesday (7/15/15).
Don’t forget the Perfect Storm in October, 2015.
Mike, you say that we are clearly facing heady inflation on things we have to buy; health insurance, housing, food and so on. Please talk to Larry Edelson who just Wednesday disagreed when a reader brought up the issue of inflation. I fully agree with you Mike, but such inconsistencies strain my confidence in Weiss.
I want to know why, as commodities have been in deflation spiral for some time now, the restaurants have not lowered their prices back to where they used to be. They inflated them due to rising food costs, but now they’re buying at lower prices again, but no change on the menus. So now we’re getting gouged while restaurants make record profits from their increased margins. Is it my imagination or not? And the boxes in the supermarket have not gone back to previous sizes now that commodities are deflated. Shouldn’t we see price swings based on the actual costs of raw goods? It’s like taxes and fees. Once they go up, they never come back down again, even when there is a surplus – except quite possibly at the pump.
For a good dividend yield in the 71/2 % range, consider STAG, an industrial REIT with a great business plan that is extremely well executed. I have been in industrial real estate for over 40 years and I understand this business. The markets and most analysts don’t. When this company trades at the dividend yield of its peers, the stock has tremendous upside.
Yes. So Unaffordable, even the rich can’t get by, LOL
http://www.mrctv.org/blog/palo-alto-plans-subsidize-housing-those-struggling-250k
Market was truly crazy this week. Gold dropped and I sold out of my 2 gold stocks waiting to buy back in. The one stock dropped a dollar and then regained the dollar plus before the session ended. My gold stocks went up and finished higher on the day go figure. The next day gold dropped again and I checked the market my two gold stocks edged a bit higher go figure. Trying to read the Fed entrails is a lost cause. Last week they were dovish and the markets jumped this week they turned hawkish and the market went sideways go figure. I really like gold but figure I am playing in a rigged market. Looks like the bears rigged yet another bear trap. Banks hate gold, brokers hate it and the Fed I think is trying to manipulate it and turn investors against it by yo-yoing their so called information releases only in a matter of days apart. True market economics have gone out the window.
After the Fed has raised rates and is likely to continue raising it higher, loans will become more expensive and less homes will be purchased. The decreasing “demand” for homes will manifest in falling property prices and likewise reflect in decreasing returns for REITs and sector stock and ETFs. Expect some sell offs in this area!
http://edition.cnn.com/videos/world/2015/05/06/lklv-paton-walsh-syria-drone-damage.cnn
I live in Austin Texas. We have seen a 7% housing price increase in each of the past three years. This is due to being one of the fastest growing cities in the US, the influx of Californians due to high tech industry expansion, and just simply prosperity. Even rental prices are increasing dramatically. On top of that, new downtown 20 plus story high rise condominiums are fetching between 500k and 1.5 million for 2 and 3 bedroom units. As a city, Austin fared well during the 2008 debacle, however, the national debt will be everyone’s demise everywhere.
On another subject, while we have recently had some discussion of the Valeant debt problems, at least that company can file for bankruptcy. There is another one of similar size though, where bankruptcy is not an option – it can only be paid off or defaulted. the news magazine, The Week, has a rundown, this week, of Puerto Rico’s $72 Billion debt. This is nearly the island’s total annual economic output, and it also owes some $30 Billion in it’s pension fund. Two government services have already defaulted on debt, and the territory has some $2 billion coming due, July 1, with no way to pay it. The poverty rate is 45%, with 12% unemployment, which would be higher, except that P.R. people have US citizenship, and some 440,000 have moved to the States to find jobs or go on the dole, just in the last decade. Republicans note: they can’t vote for president in P.R., but can while resident in the States, and they favor Democrats.
It is not just the 3.5 million P.R.s at risk. Two thirds of US pension and retirement funds own Puerto Rican government or municipal bonds, and will lose billions if the island can’t service it’s debt. This could be disastrous to many of these funds. The territory is trying: the sales tax jumped from 7% to 11.5%, and water and electricity rates have spiked, but foreclosures are also spiking, and people are literally leaving keys in their houses and moving to the States.
As if this isn’t enough, the Zika virus has hit the island (249 cases since December), and is expected to spike when the rainy season hits. It could become an epidemic involving hundreds of thousands. Many people can’t even afford screens to keep mosquitos out of their houses. Tourists and wedding and business visitors are cancelling in droves, along with their money, which might have helped.
Interesting Item: Some $100 Million recently went missing at the New York Fed. It was lost through a series of unauthorized cyber transactions. The real tragedy is that it had been deposited there for safety by the nation of Bangladesh, which is not exactly a wealthy country, and can’t really afford the loss. If you think your money is safe in ANY bank, think again. Those little bits and bytes can go missing anytime, anywhere. Only cash or precious metal and gems have real safety, and only if you can keep them safe.
We are going to face deflation. technology and the cost of servicing entitlements, pension plans is not sub stainable. A consumer economy is slowing.
Houseing is no longer viable with the generational shif, they are not willing to be tied to a 30 yr commitment.
Deflation, War and National Boundries are in the forefrount.
Trump believes by ordering troops into Iraq by the elder President Bush looking for “weapons” of mass destruction” that didn’t exist, caused many of the problems in the Mid-Eastern countries today. When Syrians were gassed by their own government, this is when the U.S. should have stepped in to stop ISIS. Had we done that, I believe the Syrians would still be in Syria and the Russians still in Russia. The US just doesn’t seem to know when we should act and when we should mind our own business.
Re: Housing Getting Unaffordable Again 3-24-16: I don’t know where RealtyTrac is looking, but housing is definitely in bubble territory again. In L.A. and San Francisco, prices are already much higher than they were just before the real estate bubble popped last time. Your article says that “If there’s any good news, it’s that affordability is nowhere near as hideous as it was in the bubble days,” which is just not true at all in my experience. Prices are now higher, and people’s salaries have not increased proportionally. So urban areas like L.A. and San Francisco, and their suburbs are through the roof!