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Registered Investment Adviser Caleb Lawrence 

Despite little real news the major averages rose sharply in morning trade entering the final hour with large gains. The Richmond Fed regional index was unchanged in August. New orders stayed solidly in the mid-teens for a 3rd month, employment advanced to 17.

The FHFA Purchase-Only House Price Index advanced .1% in June but slipped to a 6.5% year ago gain on price weakness in the West South Central, South Atlantic and East North Central regions. The Pacific region increased .7%, second only to the 1.3% gain in the East South Central region.

Mark Hanson of M Hanson Advisors who was well ahead of the curve on the previous housing bubble is out with a new piece titled Bubble 2.0. In it he notes the sharp divergence between house prices and their value as shelter based on income and mortgage rates, a divergence that has exceeded the levels seen prior to the previous bust in most regions. Given the purchase norm is to use a down payment of less than 10% it takes very little in the way of price decline for a property to go negative on an after-transaction costs basis. At the national level, the report notes that home prices are only about 6% ahead of affordability based on household income. Using MSA or Metropolitan Statistical Areas, the top 5 most expensive markets are all on the coasts and 3 of them are found in California. Number 1 is Los Angeles with a 122% affordability premium based on income, followed by #2 San Francisco at 107%, San Diego is #4 at 95%. The other two in the top five are New York 95% and Miami 83%. Not only does this make a mockery of the affordability data released using a traditional 20% down payment it shows that either incomes need to more or less double, or prices fall by half, or some combination of the two, too make real estate truly affordable.

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