Baby Boomers, in some cases already facing the 'double demands' of caring for kids and aging parents, have another economic concern, at least for the next phase of the housing cycle: substantially lower household net worth, as a result of declining home prices, so says a Washington-based think tank.
The Center for Economic and Policy Research says the median households head by those ages 45-54 in 2009 will have about 25% less wealth than the similar demographic in 2004. In dollars, household wealth will decline to $113,268 from $150,113.
Further, the above assume March 2008's housing prices hold for 2009: if they don't and prices fall another 10%, household net worth declines by about 35%; 20%, by about 45%, the CEPR said.
Economist Peter Dawson, who is not affiliated with the CEPR or the study, told BloggingStocks part of the problem was "unreasonable expectations regarding home appreciation rates, the belief that 10-15% real estate gains would continue for decades. It got too many adults out of the traditional saving and investing mode and into thinking their home would serve as a major return on investment." Most homes do appreciate, and they can help build wealth, Dawson said, but homeowners must think in terms of a 6-9% average, annual appreciation rate, "which is a more-realistic return for residential dwellings."
The decline in U.S. home values continues to accelerate, and the U.S. housing sector is showing few signs of a recovery.
Home prices in a 20-city sample plunged 15.3% in April, on a year-over-year basis, according to the S&P / Case-Shiller U.S. National Home Price survey. In March, prices in the 20-city sample declined 14.4%.
Economists surveyed by Bloomberg News had expected home prices in the 20-city Case-Shiller survey to decline 16.0% in April on a year-over-year basis.
Economist Peter Dawson said that while he doesn't expect this latest housing data point to sway the U.S. Federal Reserve regarding interest rates ahead of its Wednesday 2:15 p.m. EDT announcement, the continued housing price decline will highlight the headwinds facing the U.S. economy. "The house price declines will underscore to the Fed that while oil is feeding inflation, significant economic drags remain, and housing is the biggest drag, so the Fed has to be concerned about the potential for a pronounced economic stall," Dawson said. "They have to be careful to not raise interest rates too quickly and choke-off a recovery."
The nearly always-on-the-mark Bloomberg News columnist Caroline Baum reminds investors/traders -- and potential home buyers -- that one should not jump into summer by jumping into a home purchase (if you can avoid it).
Baum notes that one has to view April's 6.3% increase in existing home sales in the proper context: housing has been down so much and for so long that every incremental pop up looks like a housing sector recovery. It isn't.
New and existing home sales peaked in July 2005 and September 2005, respectively, but housing starts didn't until January 2006. The result? A massive inventory build.
A record housing recession
Single-family starts are down 63% from their January 2006 peak, easily 'topping' peak-to-trough declines of 38% in 1973-75, and 57% in 1984-1991, and approaching the 65% slide in the housing recession of 1977-1981, Baum says.
Home foreclosure activity jumped 48% in May compared to a year ago, as substantially more default notices, auction sales notices, and bank repossessions were reported than in the same month a year ago, research firm RealtyTrac announced Friday.
In May, one in every 483 U.S. households received a foreclosure notice, RealtyTrac said, adding that foreclosure activity increased in 40 of 50 states in the same period.
Foreclosure filings - - which include default notices, auction sales, and bank repossessions - - totaled 261,255 in May, a 7% increase from April and a 48% increases from a year ago, RealtyTrac announced.
Are public attitudes toward the U.S. government's economic policy linked to housing prices?
There are other factors involved, but over the past three decades there has been a correlation between the two conditions, The New York Times reported.
When home prices are rising at a pace moderately faster than inflation, consumers tend to think well of the U.S. Government's economic policies, The Times reported, citing Haver Analytics.
For example, during the U.S. housing market's two, prior housing booms, 1984-1987 during the Reagan Administration, and 1996-1998 during the Clinton Administration, consumers, on average, approved of the government's economic policies, The Times reported.
Pending sales of existing homes in April 2008 rose 6.3%, to a seasonally-adjusted annualized rate of 4.89 million, the National Association of Realtors announced Monday. A pending sale is one in which a contract was signed on an existing home, but not yet closed.
Economists surveyed by Bloomberg News had expected April pending home sales to fall 0.4%. The NAR said its pending home sales index rose 6.3% to 88.2, its highest level in six months. The pending homes sales index fell in March and February.
However, even with Monday's surprising April statistic, pending home sales are still down 13% from April 2007.
Economist Peter Dawson said home buyers / sellers should not conclude that the U.S. housing market is in recovery "until both sales and median prices rise for several consecutive months" across the United States.
Pending home sales varied by region. Sales rose 13% in the Midwest, 8.3% in the West, and 4.6% in South; sales fell 1.9% in the Northeast.
Economic Analysis: A surprisingly positive April existing home sales report. Still, as economist Dawson outlined, economists underscore that one shouldn't read too much into one monthly statistic, given it's a short snapshot of housing conditions, and due to likely revisions. One should also evaluate the April number in the context of the long and wide U.S. housing downtrend: sales had fallen so low that any uptick would register an increase, and that may very well have been the case in April, particularly if the existing home segment registers decreases for May, June, July, and August -- prime selling / family relocation months in the United States.
Americans net worth declined by $1.7 trillion in Q1 2008 - - the biggest drop in wealth since 2002 - - as declining home prices and a sluggish stock market took a toll on portfolios and asset holdings, CNNMoney.com reported Friday.
U.S. household net worth fell 3% to $56 trillion at the end of March, according to the U.S. Federal Reserve's flow of funds report, CNNMoney.com reported, with the amount of home equity declining to 46.2% - - the lowest on record.
Economist Peter Dawson told BloggingStocks Friday the net worth and home equity statistics aren't surprising, given the U.S. economy's current fundamentals. Further, he said the economy is now approaching "the danger level" regarding several key economic metrics.
Trends moving in wrong direction
"The two biggest concerns for the economy right now are a lack of job growth across the spectrum and stagnant wages for segments of the American workforce. A lack of job growth and wage increases will put the U.S. economy in a very serious state, and not just with home values, if the current trends do not reverse," Dawson said. Moreover, Dawson said he's less concerned about home equity and overall home values, because "a home is a derivative asset, really a function of job growth, wage gains, and rising real incomes."
"The key remains job growth, and the ability of all employees to secure the wage gains that are essential to a growing economy. Some have argued that the U.S. economy could compensate for a lack of consumption at home by simply selling more goods to consumers abroad, but this is a deeply flawed model," Dawson said. "Absent consumption at home, the U.S. economy will fall into a prolonged recession, and the key to consumption is job growth and wage increases. Without job growth and wage increases the United States will simply run out of consumers. You'll be a condition where there are plenty of goods in the stores but there will not be nearly enough consumers to buy them. That's a place the nation doesn't want to be in."
The venerable George Bernard Shaw once observed that the United States and Britain are two nations separated by a common language.
Well, in the initial decade of the globalization era, one could argue that the United States and Britain are two nations united by a common housing slump.
The U.K.'s median home price declined to173,583 pounds or $342,774. Prices are now down 4.4% in the past 12 months, according to Nationwide, the U.K.'s fourth-largest lender. Further, property values have declined for seven straight months, the longest consecutive drop since 1992.
U.K. housing slump mirroring U.S.?
London-based economist Mark Chandler told BloggingStocks Thursday there are new data points each week that suggest that those who felt the United Kingdom's housing sector would fare better than the U.S.'s during the economic downturn, are wrong.
Economists surveyed by Bloomberg News had expected April 2008 existing home sales to total a 4.85-million annualized rate. The March 2008 sales rate was revised higher to a 4.94-million annualized rate.
Even more telling, inventories -- unsold homes and condominiums -- rose to an 11.2-month supply at the current sales rate. A typical, healthy housing market has a three to four month supply of unsold homes on the market.
Further, the inventory of single family homes rose to 10.7-month supply - - its highest level since 1985. Meanwhile, the inventory of condominiums increased to a 14.2-month supply.
Also, the median sales price for houses and condominiums fell to $202,300 in April 2008, an 8% decrease from the $219,900 median recorded a year ago.
U.S. housing starts increased 8.2% in April 2008 -- an upside surprise skewed by a 36% rise in multi-family unit construction. Housing starts totaled a 1.032 million annual rate in April 2008, the U.S. Commerce Department announced (pdf) Friday.
Economists surveyed by Bloomberg News had expected housing starts to total a 940,000 annualized rate in April 2008.
Still, housing starts are down 31% in the past year and single-family starts are down 42%, the largest decline for single-family starts since 1992.
Meanwhile, building permits, a measure of future construction, increased 4.9% to a 978,000 annualized rate in April 2008; single-family permits increased 4% and multi-family permits climbed 6.8% during the month.
The median price fell 7.7% to $196,300 in Q1 2008 down from $212,600 for the same period a year ago, the NAR said. It was the largest year-over-year decline since the NAR started keeping comprehensive records of median home prices in 1979.
Median prices declined 12.3% in the West, 7.9% in the Midwest, 7.5% in the South, and 3.32% in the Northeast.
U.K. home repossession claims by mortgage lenders increased 16% from a year ago to their highest level since the early 1990s, Bloomberg News reported Friday.
The U.K.'s Ministry of Justice said possession claims, the first step in the foreclosure process, increased to 38,688 in Q1 2008, from 27,530 in Q1 2007, Bloomberg News reported. Anglo-American housing slump
London-based economist Mark Chandler told BloggingStocks Friday the large foreclosure rise indicates that the air is easing out of the housing balloon, and that the housing correction that began in the United States, is "clearly washing shore in the U.K."
U.S. Federal Reserve Chairman Ben Bernanke is urging both mortgage lenders and government officials to step-up efforts to help homeowners avoid foreclosure, Bloomberg News reported Monday.
Bernanke, in a speech in New York on Monday night, also underscored his preference to have lenders forgive a portions of mortgages for selected struggling homeowners, Bloomberg News reported. Bernanke qualified his remarks by stating that the proposal should be tightly targeted to avoid providing an incentive for default.
Bernanke's speech came about one week after the Bank of America (NYSE: BAC), a major mortgage lender, announced it will modify at least $40 billion in troubled mortgage during the next two years to keep customers in their homes, Bloomberg News reported Monday. The action could help as many as 265,000 homeowners, the bank said.
In the private sector, as in public policy, sometimes blinders prevent one from seeing the entire landscape, and a good example of that may be the current status of the U.S. housing sector.
Banks, mortgage lenders, mortgage-backed securities holders and public officials have tended to focus on the plight on subprime and comparable mortgages, and rightfully so, as these loans constitute the largest pool of non-performing assets secured by homes.
U.S. housing: A psychological shift
Still, as economist Glen Langan points out, the unusual focus on subprime has caused the nation to overlook a broader trend regarding the housing sector -- namely, the psychology of the housing market.
"What we're not grasping yet, as a nation, is that even with programs to help people stay in their homes and avoid foreclosure, the public's stance toward the housing market has changed," Langan said. "The psychology of the housing market has changed. And this has little to do with at-risk mortgages. This a psychological shift among middle-income and upper-middle-income homeowners and taxpayers. It looks like they'll be sitting on the fence for a long period of time, and this will delay the housing recovery, hurting the economy in the process."
Sales are down 23.8% compared to a year ago. Meanwhile, inventories fell 3% to 4.03 million units, which represents a 9.6-month supply at the current sales pace.
The median sales price also plummeted by 8.2% compared to a year ago, to $195,900. February 2008 sales by region were as follows: Northeast, up 11.3%; Midwest, up 2.5%, South, up 2.1%, and the South, down 1.1%.
February 2008 sales of single-family homes rose 2.8%, while condo sales rose 3.7%.
Housing Sector Analysis: For a change, a good monthly existing home sales report. Sales did not rise dramatically, but the important point is that unit sales did not decline substantially in February 2008 either, and it's likely lower home sale prices are beginning to stimulate modest demand. Still, a word of caution to potential home buyers in the United States: median home sales prices are likely to continue to decline through at least Q3 2008. One month's rise in existing home sales is not nearly enough to suggest a trend, and inventories are likely to continue to rise given current foreclosure trends, and due to the approaching spring/summer period when many families planning to move list homes for sale.
Home foreclosure activity jumped 48% in May compared to a year ago, as substantially more default notices, auction sales notices, and bank repossessions were reported than in the same month a year ago, research firm 
Americans net worth declined by $1.7 trillion in Q1 2008 - - the biggest drop in wealth since 2002 - - as declining home prices and a sluggish stock market took a toll on portfolios and asset holdings, 
U.S. housing starts increased 8.2% in April 2008 -- an upside surprise skewed by a 36% rise in multi-family unit construction. Housing starts totaled a 1.032 million annual rate in April 2008, the U.S. Commerce Department 
U.S. Federal Reserve Chairman Ben Bernanke is urging both mortgage lenders and government officials to step-up efforts to help homeowners avoid foreclosure, 
In the private sector, as in public policy, sometimes blinders prevent one from seeing the entire landscape, and a good example of that may be the current status of the U.S. housing sector. 
The week in preview: New quarter earnings kick-off
Comfort Zone Investing: Keep your recovery expectations real
Will Americans have to slim down to fit into their cars?
