June 4, 2014
For all the talk about a recovery, pundits, especially those who peddle expensive newsletters, continue to forget one key distinction of the New Normal: there are those for whom the recovery has never been stronger, well under 10% of the population, i.e., the already wealthy whose net worth is allocated in financial assets. And then there is everyone else, that vast majority of Americans, who not only have not benefited by the Fed’s relentless balance sheet expansion and accompanying asset reflation but whose incomes just posted the first decline in real terms since 2012.
It is this latter segment that should be concerned by a recent survey conducted by the MacArthur Foundation titled “How Housing Matters”.
According to the survey during the past three years, over half of all U.S. adults (52%) have had to make at least one sacrifice in order to cover their rent or mortgage. Such sacrifices included getting an additional job, deferring saving for retirement, cutting back on health care and healthy foods, running up credit card debt, or moving to a less safe neighborhood or one with worse schools.
More disturbing, the survey also found that while there are some indicators that the American public’s views about the housing crisis are shifting toward the positive, large proportions of the public are not feeling the relief: seven in 10 (70%) believe we are still in the middle of the crisis or that the worst is yet to come.
And no, it is not just the high school graduates who are desperate: a whopping 60% of college grads agree: the worst is yet to come (perhaps after looking at their student loan balances).
Some more facts.
As MarketWatch reports, “although mortgage rates are still quite low, down payments, poor credit and tighter lending standards remain three of the biggest hurdles for buying a home, especially among young people, Blomquist says. “The slow jobs recovery for young adults has made it harder for them to save and to get a mortgage.” Some 84% of young people are delaying major life decisions due to the poor economy, according to a 2013 survey by Generation Opportunity, a nonprofit think tank based in Arlington, Va.”
What’s more, at least 15% of American homeowners (or residents of 78 counties across the country) were living in housing markets where the monthly mortgage payment on a median-priced home requires more than 30% of the monthly median household income — long considered the maximum for rent/mortgage repayments. Housing costs above that threshold are “unaffordable by historic standards,” says Daren Blomquist, vice president at real estate data firm RealtyTrac. In New York county/Manhattan, mortgage payments represent 77% of the median income and in San Francisco County represents 70%.
As a result of a broken economy and lack of good job opportunities the “American dream” is now on its last legs: more than half of Americans, or 54%, believe that buying a home has become less appealing than it once was while some 43% of respondents have indicated that it is no longer the case that owning a home is “an excellent long-term investment and one of the best ways for people to build wealth and assets.” Even as seven in 10 renters (70%) aspire to owning a home, high proportions (58%) believe that “renters can be just as successful as owners at achieving the American Dream.”
Why not: as long as one is able to delude themselves that renting the American Dream is “good enough.”
And the biggest disconnect between the abovementioned pundits, all of whom most likely have lucrative jobs that pay 6 or 7 figure incomes: while economists and housing experts say the housing crisis is behind us, large proportions of the American people are not feeling the relief. Very high proportions of the public (70%) continue to believe that we are still in the midst of the housing crisis (51%) or that the worst is yet to come (19%). Only 25% believe “the housing crisis is pretty much over.” The public in 2014 is only slightly more optimistic than it was one year ago, when 77% believed we were still in the middle of the crisis or that the worst was yet to come. More than two in five adults (42%) believe the housing market today continues to be a serious problem.
The biggest irony is that for most, the biggest culprit for the current economic fiasco, the US government, is the only entity that can help in the existing economic predicament:
Americans believe that government can and should be doing more to improve housing affordability for both renters and owners. Indeed, most do not think that either homeownership or renting should take priority. Rather, solid majorities want the federal government to invest in both equally.
Stupidity aside, we hope that this clarifies the perpetually nagging question: why is there is no retail participation in this Fed-engineered, centrally-planned rally. The simple answer: people just don’t have the disposable income to chase stocks at record highs. The not so simple answer: people’s faith in US capital markets, just like their economic well-being, is slowly being eroded at the expense of the wealthiest 1% of US society, which, as Piketty correctly observes (if incorrectly diagnoses ways to fix) has never been richer.
Gold Goliath is not your typical gold dealer.