Here in the second half of the seventh year of economic recovery, the national housing market is still just pooping along.
Nothing bad — the national rate of price appreciation running about 5 percent, steadily so.
Sales of existing homes are up (again) about 10 percent year-over-year, but it will take another five years at that pace to resemble “hot,” relative to population gains.
Sales of new homes need about a decade at the current rate of gains just to get to historical “healthy.”
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Where’s the fire? By the third year of any previous recovery, the Fed has had to lean into housing to slow it down.
Where’s the fire?
Mortgage rates are back to the all-time low, where we were four years ago. One measure of housing as a “deal”: compare the after-tax mortgage rate to the rate of price appreciation.
If prices are rising faster than interest costs accumulate, deal!
For most homebuyers, 3.50 percent converts to something close to 2.75 percent, and prices are rising twice that fast — and up to a half-million dollars profit per couple, price gains are tax free.
Jackdaws complain that the Fed has failed, many swearing that super-low rates and quantitative easing are counter-productive.
It’s odd that Fed easing ended every previous recession. For every problem, there is a simple and mistaken solution.
Many gripe that mortgage underwriting is too tight.
It is true that we are a pain in the ass, hounding borrowers for documents remotely connected to credit performance. And the newest grandiose effort by the CFPB (Consumer Financial Protection Bureau) to fix the mortgage process from application to closing is a complete bust, loads of unnecessary sand and gravel in lender and consumer gears, but it’s not reducing approvals of loans.
Every reasonable low-down-payment and assistance program is back in operation, a lot like the ’80s and ’90s. Underwriting of appraisals is back to normal. The only two classes of loans which are impaired — again compared to ’80s and ’90s — are those for the asset-heavy but unusual or no income, and jumbos.
Those two categories, however, are not enough to account for the absence of a big-time housing party.
Or should we ask, ‘Where’s the money?’
My beloved business partner of 20 years kept a few cartoons on her office door. One had a middle-aged couple sitting at opposite ends of a sofa, the female saying: “Harold, I married you for your money. Where is it?”
Other reasons for housing to be not on fire include student loans. Those balances have doubled since the Great Recession, but the average total loan is barely $25,000.
There’s a difference between real pain and an inconvenience.
Another “reason”: Millennials suffer from collapsed SAT scores, unable to perceive the benefit of owning a home versus ever-increasing rent.
Go deeper.
The job market has changed. The decline in the workforce especially among the young and middle aged is certainly due to global trade and automation removing the first two rungs on the job ladder.
Until about 2000, a working pair of partners could earn a dignified family income at jobs using their hands. Today those jobs pay so poorly (if available) that they offer little incentive, and even less opportunity for advancement.
From the parade of clients through my office, their worries for themselves and their kids, three things stand out.
First, the cost of health care is destructive to the middle class. What good does Obamacare coverage do me if I can’t afford the deductible? Where am I going to get $5,000?
The same problem afflicts higher education, feeding back into the student loan issue: The cost of health care and higher education have been rising at two to three times the rate of inflation for 25 years. The Corleones should have such rackets, proof against market forces.
The third piece: Primary education has failed its primary duty — to prepare our youth for productive employment and citizenship. We have wandered off into unimaginable priorities for multicultural studies and self-esteem and become intolerant of words like “competition.”
One tradition preserved: The few kids who accept vocational tech training are still ridiculed and ostracized. We need apprenticeships, old-fashioned civics and daily affirmation that there is dignity in all work.
I fear that our not-on-fire housing market reflects too many Americans struggling to find economic ignition and a modicum of self-provided security.
Lou Barnes is a mortgage broker based in Boulder, Colorado. He can be reached at lbarnes@pmglending.com.
