Thurs, AUG 31st, 2017
All real estate is local. It’s the industry’s version of Tip O’Neill’s famous adage regarding success in politics. And while there is certainly some truth to this phrase, the housing market at the macro level provides important information on the condition of the national economy. Admittedly, it’s a notoriously noisy (1, 2, 3, 4 etc.) data series month-to-month, quarter-to-quarter. It can confuse even the most seasoned market watchers.
For me, I prefer to smooth out the variations by 1) looking at annual year-over-year trajectories, and 2) focusing my attention on what I consider to be higher quality housing data points: supply / demand = inventory, builder confidence, consumer confidence (i.e., window into the appetite for big ticket purchases), employment & income levels, affordability, household formation trends, borrower profiles, access to credit, and, of course, a household’s ability to service a mortgage (I don’t know … this one feels kind of important!). Taken together I consider these the foundation underlying the housing market, most of which currently signal that housing continues to be on the mend. Meanwhile, enter fresh data on mortgage debt servicing:
(More on this from Bill McBride over at Calculated Risk.)
Wait, what? The lowest level of serious delinquencies in 10 years!? *But-but … what about last month’s housing starts? Can’t we blow out of proportion that particular monthly statistical noise? I need a headline! Something to trade off of! Or at least complain about!* Jason here: You can if you’d like, but I prefer the abovementioned sturdier analytical framework.
The housing market is an important piece of the macroeconomic story. It impacts jobs, wages, downstream consumption (think – furniture, artwork, towels, spoons, Windex, etc.), materials pricing, profits, taxes, bank credit, and ultimately virtuous net asset formation on household balance sheets. It’s about shaping communities and other vital collective factors, security & well-being, and underpins the much lauded “American dream.” In a nut-shell, housing matters … a lot. Just remember, understanding the housing market at any point in time is akin to constructing a home: it’s much more imperative to keep your eye on foundation and framing than other less crucial elements – like roof color, or style of drapes.
Jason L. Ware, MBA / Chief Investment Officer
Albion Financial Group