Neil S. Siskind, Esq, pictured center, Holiday party, December 2016
Housing prices have been too high for too long. People bought low in 2011 and 2012, low interest rates have fueled speculation, and corporate buyers have entered the markets to rent out homes for income- depleting inventories for home-buyers.
Recent reports on housing starts are mixed- down 14% in the mid west, up 29% in the northeast … so, mixed.
The Fed has been raising interest rates. Most indicators seem to show that housing is slowing. Assuming this to be the case, it may not be the worst news.
If the Fed can coordinate a “slow” deflation of asset prices (housing and equities) that have been inflated by excess (or excessive) liquidity, while people are working, this could be an excellent result (i.e a soft landing). Moreover, as construction jobs slow, it will free-up the labor market for small businesses who need the kind of employees that have migrated to construction (i.e. laborers or blue collar) and mortgage and real estate brokering (sales and office administration workers).
So, housing may not result in a 2007-like popping of a bubble that takes down the entire economy and financial system- it may have a more muted, and even beneficial result, as it helps keep wage inflation low.
Of course, it’s not all good news. As housing prices go lower, so does household wealth and refinancing, which negatively affects consumer spending.
This is all separate from issues related to energy prices, trade disputes and tariffs, shadow banking, and the other affects of rising interest rates. When you take economic data and factors together, rather than individually, the picture, of course, can change. But, taking housing, alone, a slowdown, making homes more affordable as people are still working, while also alleviating pressures on wages as labor is freed-up from housing related businesses, is not the worst thing in the world- especially if the benefits of lower housing prices outweigh the negatives of higher costs of borrowing to buy a home- so that net, net, buyers can do a bit better as asset prices decline. At the same time, home owners who are not selling, will not really be negatively affected by the lower valuation (beyond their general personal net worth). Fairer, or more balanced prices for both buyers and sellers may mean a more active and healthy market- rather than no one being able to afford to buy a home because no one can afford to move because they can’t afford a different home.
If net, net, jobs are not lost, or are easily replaced, and there is no negative systemic affect on the financial system, then lower asset prices (houses and equities) can be a healthy outcome for all.
Owners’ equivalent rent of primary residence, which is what a homeowner would pay to rent or receive from renting a home, rose 0.2 percent in September after rising 0.3 percent in August. (Owners’ equivalent rents nationwide is a little vague and difficult to measure, if you ask me.)
This lower rate of growth is a good thing, as oil and gasoline prices (a little lower in September than in August), interest rates, and tariffs, have been rising- while wages, largely, have not. At least, consumers get some reprieve.
But here’s the rub: Some people think that if home purchases (single family homes or condominiums) go lower, it means that rental demand and rents will rise. And, if rents decline, they think that it means home ownership demand is strong. It’s a possible correlation at times, but it’s not, necessarily, true. It can simply mean there is a market imbalance- specifically, an oversupply.
Weak housing markets begin at the highest price-points, with homes that are owned by investors and second home owners (and those who bit off more than they can chew during good times) hitting the market- and with the weakness and growing inventories trickling down. This leads to investors and second homeowners capitulating and deciding to rent-out their homes while the house sits on the sale market. This adds to the rental inventory- starting at the highest points, and then hitting the markets below.
The lower than expected CPI may be and probably is, when combined with other recent housing, home loan, mortgage rate, and home-builder data, indicating a slowing housing market, with sales taking longer than expected for investors and second home owners, which is causing rental inventories to rise simultaneously with sales inventories- rather than indicating that renters are deciding to buy.
It’s not only that inflation is tepid- underlying growth is slowing. You won’t hear many on “Wall Street” acknowledge that growth is already slowing (while many acknowledge a slowing to begin next year- and many have changed from 2020 to 2019 on that issue), because “Wall Street” ignores, or fails to understand the economics of real estate- which is how they, and we all, got into trouble in 2007- and why, even at this late stage in the cycle, investment funds are raising capital to buy office buildings and warehouses- at inflated prices and low cap rates that rents will not support.
- This can be true, but rents would only rise if rental inventories are low at such time. It depends on inventory levels- supply and demand.
Neil S. Siskind, Esq., President
The Siskind Law Firm
Neil Siskind is the Founder & Chairman of The Fatherhood Assignment
Learn more at: http://www.neil-siskind-the-fatherhood-assignment.org/
Neil Siskind is the Conservator of the Neil S. Siskind Nature Preserve
The Neil S. Siskind Nature Preserve is over 7 acres of environmentally-pristine waterfront land in a magnificent setting along New York’s majestic Hudson River. The Preserve includes a variety of species of animal and plant life, and is a precious example of the thoughtful maintenance of New York’s priceless open spaces. The land’s uses are limited to outdoor recreation such as hiking and climbing, and the study of ecology, nature and land use. The Neil S. Siskind Nature Preserve allows for the intelligent contemplation of our valuable natural resources and the most effective ways to maximize them and keep them protected.
Neil Siskind, Founder, “National Fatherhood Day” – March 29th
Read about the non-profits and charities whose missions Neil Siskind supports and promotes: www.neilsiskindsupports.com
Caring is Free®
You can read what clients and associates say about Neil Siskind at: http://siskindlawfirm.com/neil-siskind-bio/.
Neil Siskind’s Volunteer Work:
– Memorial Sloan Kettering Cancer Center, Volunteer
– Memorial Sloan Kettering Cancer Center, My Fundraiser- Help Neil Siskindhelp children with cancer to be more comfortable: http://mskcc.convio.net/site/TR?px=3182108&fr_id=2632&pg=personal
– Make-A Wish Foundation- Help Neil Siskind make sick children’s wishes come true by creating your own fundraiser: Neil-Siskind/Help-Make-A-Child-Smile.htm
– DonorsChoose.org- Donate to one of my needy public classrooms: http://www.donorschoose.org/NeilSiskindGiving
– Champion Children– We seek to inspire people through stories of children who have overcome challenges: http://siskindlawfirm.com/neil-siskind-champion-children/
Neil Siskind’s Pro Bono Work:
– Saving Senior Citizens- Protecting New York’s senior citizens from fraud and financial abuse www.savingseniorcitizens.com
– Senior FreeStart Business– Pro Bono: We seek to help put senior citizens in the right direction so that they can face the challenges of the modern economy: http://siskindlawfirm.com/free-start-business/
– Veteran FreeStart Business– Pro Bono: We seek to help put Iraq and Afghanistan war veterans in the right direction so that they can face the challenges of the modern economy: http://siskindlawfirm.com/free-start-business/
– In development: The Neil S. Siskind School of Hope: A free school to teach inner-city youths the skills of entrepreneurship and importance of economic self-sufficiency.
Neil Siskind’s Government Work:
– Suffolk County District Attorney’s Office, Boston, MA, 1994, Intern
– Office of Senator Christopher J. Dodd, Newington, CT, 1992, Intern
– Hartford County Department of Probation, Hartford, CT, 1991, Intern
Neil Siskind’s Community Assistance:
Financed & operated a legal clinic providing low-cost legal services to struggling Long Islanders during the recession to help clients resolve debt, organize finances, and launch new businesses.
Neil Siskind’s Professional Curriculum Vitae: http://neilsiskind.com/
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