No. of Recommendations: 5
This video by Patrick Boyle popped up, combining a few different topics we've been here lately, housing, consumer credit, and asset prices.
He notes an odd dichotomy in the US economy. Consumer spending is strong. But at the same time credit card and other delinquencies are hitting record highs. A lot of this is explained by a bifurcation in the housing market separating the haves into the have nots. Home prices are rising along with interest rates, so housing costs have gone up a lot for newer buyers. Rents have gone up a lot too. This part of the population is getting squeezed by housing costs and this is leading to an increase in homelessness. One top of this, the U.S. has a long-standing shortage of housing supply. Builders face rising costs and labor shortages, worsened by tariffs and immigration restrictions. So this trend is not likely to change soon.
But if you have older, lower interest rate mortgage, your costs are locked in at lower rate. Below the current rate of inflation, in fact. This cohort is reluctant to move, which reduces geographic mobility and tightens inventory, driving prices up putting further pressure on the first group. Surprising to me is that 40% of home owners own their home outright. All asset prices are high right now, so this group in particular is feeling both reluctant to move and pretty flush. Spending on luxury items like eating out is increasing.
There is a second bifurcation among Millennials who had family help buying a home are increasing their wealth faster than previous generations. The remaining are being left behind.
Interestingly, intuitional investors don't seem to be playing much of a role in the housing problem.
I've long been a proponent of never paying down the mortgage. Boyle notes that historically, this has been the smart play. But because of current high interest rates and high asset prices, it might be a good time to consider paying down the mortgage (if you have a higher rate mortgage, of course).
While the Federal Reserve may cut rates, 30-year mortgage rates mainly track long-term bond yields. Rates are expected to stay around 6.75% for now. Inventory is rising in some pandemic hotspots, but prices are not meaningfully falling overall. Boyle cautions that those waiting for a more favorable time to buy might be disappointed.
Full video at the link.
https://www.youtube.com/watch?v=T8J-IjF8IsM 