The same questions and phrases keep being tossed around—tepid housing recovery, jobless recovery, anemic housing starts, historic lack of housing inventory, lack of buyer confidence, regulatory tightening of credit, spotty home value increases, etc.
What is the truth? How local are these dilemmas? What does the past say about our future? After re-reading some of the most recent Barron’s, especially Kopin Tan’s work, I started to fill in the puzzle.
Well, in the past, kids were able and eager to launch. The USA formed households at a healthy rate of 1.35 Million per year prior to the Recession. Between 2007-2001 it has dropped to 550,000, meaning 800,000 were living together in tighter quarters, but recently households are back crossing the million mark. This move results in new home construction back to 1.11 million units, the highest in 5 years. Also we have a dropping ratio of unsold new homes to the stock of existing homes as well as homeowner vacancy rate compared to where we were in the recession.
Still, we are plagued with 36% of Americans ages 18-31 live at home, up from 32% before the recession and the highest in 4 decades, per the Pew Trust. Between 1980 and 2010, the Americans age 25-34 living with older family members has doubled from 11%to 21.6%. Why? Maybe it is student loan debt, lower paying jobs, inability to save and tight lending standards? But there are a lot of families who would give the 3.5% gift to move them out; I think it has become socially acceptable. I think their friends are home to; they can live in a nice town, not a “first apartment rate hole in the city”. Generationally they want it now and will justify living at home as a tactic to save to buy, but years can go by and comfort creeps in and the enabling parents of today actually may like being parents again.
What about pure head count? Are there more or less of us? Those of us who are married have shrunk to 25% vs 30% back in 2007. With the putting off of marriage and starting families, our population is growing at the lowest rate since 1937, per the Brookings Institution. That alone could keep a lid on the housing growth.
What about our jobless rate shrinking from 10% to 6.6% in four years? Doesn’t that drive the housing market higher? It does to some extent but look underneath.
- Our labor force participation had grown over the years as women and baby boomers had entered the work force. It peaked in the late 1990’s at 67% and been declining since to a 36 year low of 63%.
- Between the long term unemployed (36% have been unemployed for more than 27 weeks),
- Globalization and technology driven job elimination (compare Twitter with 2,300 employees to Deere 67,000 and they share the same market cap),
- Baby boomers are retiring at 1.5 mill a year (turning 65) over the next 15 years,
- Younger Americans ages 25 to 54 who have quit the work force entirely have increased another 5% last year
There are jobs out there but not the right jobs for those who are looking. Per David Rosenberg at Gluskin Sheff, 23% of small businesses have at least one position open they cannot fill, the highest in 6 years. Yet unemployment among college graduates is just 3%; but maybe the jobs they are getting aren’t the jobs best suited for them. Current job openings climbed above 4 million for the first time since March 2008. If all 4 million jobs were filled, our unemployment rate would fall to 4%.
But what about interest rates moving up and snuffing out the housing recovery? Yes, every 100 bps slows the growth 2-3% but it does not slow the building momentum and confidence due to job and wage growth. The confidence in the ability to earn income for the foreseeable future drives the consumer to buy and rates just limit the size of the purchase not whether they will purchase.
So the answer may not be with the government as we have seen. The government can drive refis (but even that has limits, as we know) but they struggle on the purchase front. It is on the corporations of America to close the gap between those who think their talents aren’t needed and the positions that are open. Corporate profits as a percentage of national wages have grown to 27% from below 15% in the 1980’s and wages are at the lowest share of national income in two generations
No matter how much the central banks try and inflate our economies, the lack of corporate investment in their own infrastructure, in the training of people, and therefore the creating of markets not just profits will continue to stagnate our growth. This will mean we will have little housing bubbles in the wealthiest communities but nowhere else. The statistics do show a healthy trend towards housing prices outpacing inflation by 5+%for a few years but then will flatten out.
So what can we mortgage lenders do? Our ability as lenders to drive the message of homeownership done right back into our communities is crucial. We know that living in your own home, correctly sized to needs not wants and fit comfortably into the size of their income, is the best feeling there is. It instills confidence, it starts families, it grows new communities, it slowly creates and spreads wealth and it gets you out of therapy. We need to partner with realtors’, financial planners, local bankers, accountants, attorneys, businesses, etc. and get the word out through social media, classes, articles, etc. It is a good time to buy for the right person at the right time in the right neighborhood with the right mortgage at the right rate; we need to let them know. NOW.