New home sales during the housing “recovery” of the past few years are roughly equal to the lows of new home sales of the 1960’s, 70’s and 80’s.
More new homes were sold in many months in the 1960’s and 1970’s than were ever sold during any month during the period of 2010-2016.
Three Factors Are Holding Back New Home Sales in the United States.
Lack of Inventory Housing Myth
Despite a rise in the prices of existing and new homes to pre-housing crash levels, new home sales in the United States remain mired at levels below those in the 1960’s and 1970’s when the population was approximately 40% smaller. Existing home sales have improved but remain far from the 2005 peak.
An often cited rationale for lower existing home sales is a lack of inventory. Citing low existing home sales because of an inventory shortage is an excuse for a poor housing market that reflects a poor economy.
If there is a shortage of existing home inventory, one might think that new home builders would be busy trying to supply inventory to the market to make up the supposed inventory shortfall.
New Home Sales
New home sales between the “housing recovery” years 2010 – 2016 are at best comparable to the new home sales of the 1960’s.
Chart source: US. Bureau of the Census, New One Family Houses Sold: United States, retrieved from FRED, Federal Reserve Bank of St. Louis May 24, 2016.
Three Reasons New Home Sales Remain Mired at Multi-Decade Lows
1. Student Loans
40% Of Student Loans are Deliquent or in Default
Nearly 10 million Americans with government backed student loans weren’t making payments as of January 1, 2016. According to the Wall Street Journal, forty-three percent of the twenty-two million Americans with federal student loans were not making payments for one reason or another.
Default, Late or in Forbearance
About 16%, or 3.6 million, were in outright default in the aggregate of $56 billion in student loans. Another 14%, or three million, were at least a month behind on their payments which in the aggregate total $66 billion. Yet, another three million Americans with student loans have some type of permission to suspend payments due to inability to pay usually because of unemployment.
Virtually NONE of these approximately ten million Americans will be buying a new home this year or next.
If 43% of those with student loans are in the cicumstance where they can’t pay, how many are close to not being able to pay and ready to throw in the towel and stop paying? A fair estimate might bring the total from 43% to more than half.
Of the ones that can afford to pay their student loans, how many can afford to also buy a new house? The new home sales figures of the past six years, indicate far fewer than in prior decades.
Millennials are currently in their prime working years. Not only are they saddled by massive student loan debt, but as a group are working and earning less.
Median household incomes have not risen since the end of the Great Recession, while new home prices have soared to record highs.
US. Bureau of the Census, Real Median Household Income in the United States retrieved from FRED, Federal Reserve Bank of St. Louis, May 30, 2016.
2. Poor Job Market
Another reason that the housing recovery hasn’t led to a healthy increase in new homes sales is the weakness of another “recovery” – the job market recovery.
Despite the unemployment rate dipping from double digits at the height of the Great Recession to about 5% today (in part because people who have given up on working are no longer considered unemployed even though they are not working) for those working, income gains are tiny.
They Myth That the Labor Force Participation Rate is Declining Because of Retiring Baby Boomers
In “Why The Job Recovery is a Farce“ published in March 2015, we showed that the labor force participation rate was falling. The pace of decline in the labor force participation rate, however, was greater for those in their prime working years.
The only group that showed an increase in the labor force participation rate were those aged 55 or older with the most pronounced gains for those 65 and older.
In “Why the Job Recovery is STILL a Farce“ published in November 2015, we showed that the trend of older workers postponing retirement by remaining in the work force or coming out of retirement continued, while the labor force participation rate of those in their prime age working years was at its lowest level since the early 1980’s.
The same low rates that have helped drive home prices higher also destroyed the ability of retirees to live off interest on their savings, hence the increased baby boomer labor force participation rate.
The labor force participation in early 2016 is still hovering at levels last seen in 1979, when fewer women were attatched to the labor force. The often cited reason for a decline in the overall labor force participation rate is that baby boomers are retiring and driving the percentage of people attached to the labor force lower.
A review of the labor force participation rates by age groups shows that not to be the case. Most troubling is the labor force participation rate of those in their prime working and home buying years (25-54) has declined during the “job recovery” of 2009-2016.
Civilian Labor Force Particpation Rate 2008 -2016
The overall labor force participation rate has fallen steadily during the “jobs recovery”.
US. Bureau of Labor Statistics, Civilian Labor Force Participation Rate, retrieved from FRED, Federal Reserve Bank of St. Louis, April 18, 2016.
Civilian Labor Force Particpation Rate 2008 -2016 – aged 20-24
The labor force participation rate for those 20-24 is lower in 2016 than it was during the great recession of 2008 -2009.
US. Bureau of Labor Statistics, Civilian Labor Force Participation Rate: 20 to 24 years, retrieved from FRED, Federal Reserve Bank of St. Louis, April 18, 2016.
Civilian Labor Force Particpation Rate 2008 -2016 – aged 25-54
While the labor force participation rate for those aged 25-54 has increased in 2016, it remains lower than the rate during the Great Recession of 2008-2009
US. Bureau of Labor Statistics, Civilian Labor Force Participation Rate: 25 to 54 years, retrieved from FRED, Federal Reserve Bank of St. Louis, April 18, 2016.
Civilian Labor Force Particpation Rate 2008 -2016 – aged 55+
The labor force participation rate among those aged 55 and older is higher in 2016 than it was during the Great Recession of 2008-2009.
US. Bureau of Labor Statistics, Civilian Labor Force Participation Rate: 55 years and over [LNU01324230], retrieved from FRED, Federal Reserve Bank of St. Louis https://research.stlouisfed.org/fred2/series/LNU01324230, April 18, 2016.
Civilian Labor Force Particpation Rate 2008 -2016 aged 65+
The labor force participation rate of those aged 65 has increased from about one in five in 2009 to nearly one in four in early 2016.
US. Bureau of Labor Statistics, Civilian Labor Force Participation Rate: with No Disability, 65 years and over [LNU01375379], retrieved from FRED, Federal Reserve Bank of St. Louis, April 17, 2016.
3. Record High New Home Prices
New home prices hit a record high in early 2016.
New home sale prices have risen steadily since the Great Recession of 2008-2009 and hit an all time high in 2016.
Bureau of the Census, Median Sales Price for New Houses Sold in the United States, retrieved from FRED, Federal Reserve Bank of St. Louis, May 29, 2016.
While many cheer on rising home prices, there is a dark side to higher home prices – unaffordability.
Record high new home prices, a lower percentage of those in their prime home buying years attached to the labor force, many of whom are defaulting on their student loans has kept home sales at levels that could hardly qualify as one associated with a housing “recovery”.
If you have enjoyed this report, please consider sharing it, buying your precious metals through the Smaulgld affiliates linked to on this site* and subscribing (for free) to Smaulgld.com.
Get Free Updates From Smaulgld.com
Subscribe to Smaulgld.comto receive free gold and silver updates, news and analysis.
Please visit the Smaulgld Store for a large selection of recommended Kindles, books, music, movies and other items.
You can support Smaulgld.com by making all your Amazon purchases through the search widget below and by ordering your gold and silver by clicking on the JM Bullion, BGASC, Bullion Vault, Gold Broker, Golden Eagle Coin, GoldMoney, SD Bullion, Perth and Royal Canadian Mint ads on the site.
DISCLOSURE: Smaulgld provides the content on this site free of charge. If you purchase items though the links on this site, Smaulgld LLC. will be paid a commission. The prices charged are the same as they would be if you were to visit the sites directly. Please do your own research regarding the suitability of making purchases from the merchants featured on this site.
Chart Disclaimer: Information presented here has been obtained from a third party and is presented for information purposes only. Smaulgld can not and does not guarantee the accuracy or timeliness of the data displayed on this site and therefor the data provided should not be used to make actual investment decisions. You should always consult a professional investment adviser before investing in precious metals or any type of investment. You acknowledge that Smaulgld assumes no responsibility for the integrity of data on this site.
The content provided here is for informational purposes only. Making investment decisions based on information published by Smaulgld (SG), or any Internet site, is not a good idea. Accordingly, users agree to hold SG, its owner and affiliates, harmless for all information presented on the site. SG presents no warranties. SG is not responsible for any loss of data, financial loss, interruption in services, claims of libel, damages or loss from the use or inability to access SG, any linked content, or the reliance on any information on the site.
The information contained herein does not constitute investment advice and may be subject to correction, completion and amendment without notice. SG assumes no duty to make any such corrections or updates. As with all investments, there are associated risks and you could lose money investing. Prior to making any investment, a prospective investor should consult with its own investment, accounting, legal and tax advisers to evaluate independently the risks, consequences and suitability of that investment. SG disclaims any and all liability relating to any investor reliance on the accuracy of the information contained herein or relating to any omissions or errors and as such disclaims any and all losses that may result.