Monday, February 22, 2016

Seattle Housing Affordability

1)      In 1995, the affordability ratio was 53%
a.       Affordability was calculated by average monthly US mortgage payment in 1995/average monthly income.  Translation:  % of the average monthly income spent on a mortgage payment.
2)      In 2005, the affordability ratio was 70%...meaning homes were much less affordable in 2005 versus 1995.  BUT, thanks to some pretty lenient lending guidelines, more people were owning homes.  ICYMI, things didn’t work out with the super lenient lending guidelines
a.       NOTE:  The LEAST affordable year was 2007, when affordability was 77%!  That means in 2005, 77% of the average US monthly income was spent on a mortgage payment.  That’s CRAZY!
3)      In 2015, affordability has fallen back to 66%. 

So, homes are more affordable in 2015 than they were in 2005, but only by 4%.  So what else is going on?  Well, the largest crop of incoming homeowners are being absolutely crushed by student loans.  That’s what’s up.  Home’s may be more affordable on the metric of payment/income compared to 2005…but what that ratio doesn’t take into account is the average student loan debt.  Check out this graph below.  It doesn’t go all the way to 2015…but I think we get the point. 

In the end, homeownership is falling because the new generation of homebuyers simply can’t afford a home PLUS pay all their other debts…like student loans (car payments, cell phone bill, health insurance, credit card debt…you name it, life is considerably more expensive for the millennials than it was for generations previous). 


Stats and Graphs below are for Seattle proper

On to Interest Rates…
Weekly Interest Rate Recap for the week ending 2/12/16
The week started off with rates continuing their fall.  Right now we’re experiencing a very anxious worldwide stock market…the data hasn’t come out yet to support everyone’s worst fears, BUT the data is pointing towards everyone’s worst fears.  As oil prices fall, more and more oil companies are forced into bankruptcy and layoffs; European banks are getting hammered on fears over the ramifications of negative interest rates; Japan’s markets are getting crushed on GDP concerns; and lastly China…Just…China.  Enough said there. 

On Wednesday, Janet Yellen spoke and gave her testimony to the House Committee on Financial Services.  It was a different tone than the last few, but that shouldn’t be a surprise with all that’s going on in the world markets.  Instead of addressing whether or not the Fed would continue to raise interest rates throughout the year, she stated that they are not prepared to lower the rate.  “There is always a risk of a recession…and global financial developments could produce a slowing in the economy…[but] I don’t think it is going to be necessary to cut rates.”

Mortgage interest rates have been steadily falling for the last month+ as a flight to safety has investors selling out of world stock markets and purchasing US Mortgage Bonds.  However, a little bit of good news broke into the market on Friday the 12th.  Not only were there rumors that OPEC might actually cut world oil production (which would help to raise oil prices); but retail sales for January were slightly above estimates, showing that at least on the home front the US Economy is resilient in the face of world market turmoil.  This news caused the mortgage bond to reverse trend, and it looks like we will end the week with interest rates ticking slightly higher.

Happy Investing!

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