Connect with us

Economic News

Some Much Needed Perspective

Perhaps to the collective short-sightedness that has been one of the contributing factors to the current housing market shift, but not to those who see housing as a long-term, buy (and live in) and hold investment. … Let’s shift the perspective from one that tracks the housing market on a week-to-week and month-by-month basis and recognize that ” relatively” 6% is as close to free money as we’re likely to see.

Published

on

30 Year Fixed Interest Rates - 1971 through 2008


Reality Check?

In reading the multitudinous stories about the Fannie/Freddie bailout/debacle/needed reform/callitwhatyouwill, one of the more stalwart voices in the economic world demonstrated the need for perspective. In Monday’s Wall Street Journal story titled Plan Skirts Housing’s Biggest Troubles, this sentence was striking and bewildering:

The most immediate change could come in the form of lower mortgage interest rates. They have remained relatively high — above 6% — for much of the past year amid credit-market troubles.

Really? 6% is relatively high? Perhaps to the collective short-sightedness that has been one of the contributing factors to the current housing market shift, but not to those who see housing as a long-term, buy (and live in) and hold investment.

Take a look at the above chart, share it with your colleagues and clients. Relative to the recent real estate market, 6.5% may be considered high, but relative to historical trends, six to eight percent is LOW. Let’s shift the perspective from one that tracks the housing market on a week-to-week and month-by-month basis and recognize that “relatively” 6% is as close to free money as we’re likely to see.

Dad, Husband, Charlottesville Realtor, real estate Blogger, occasional speaker - Inman Connects, NAR Conferences - based in Charlottesville, Virginia. A native Virginian, I graduated from VMI in 1998, am a third generation Realtor (since 2001) and have been "publishing" as a real estate blogger since January 2005. I've chosen to get involved in Realtor Associations on the local, state & national levels, having served on the NAR's RPR & MLS groups. Find me in Charlottesville, Crozet and Twitter.

Continue Reading
Advertisement
10 Comments

10 Comments

  1. Ken Brand

    September 11, 2008 at 11:47 am

    Brilliant.
    Thanks,
    kb

  2. Bob

    September 11, 2008 at 12:12 pm

    I started in 1990. When rates dropped below 10%, my broker threw a party.

  3. Benn Rosales

    September 11, 2008 at 12:19 pm

    Bob, help me with more perspective here, what was the median price when 10% was a good day?

  4. ush

    September 11, 2008 at 12:20 pm

    The rates may be lower today, but the post does not take into account that cost of homes is much higher, while wages have not increased by the same rate.

    If we were to adjust the chart to take the rise in wages factor, one would have a clearer picture, and observe that the combination of rates and home prices make the home buying financing more similar than not, regardless of the rate.

    That is, in summary, the % of income remains similar, regardless of the interest rate.

    my 2 cents.

  5. Jim Duncan

    September 11, 2008 at 12:25 pm

    Bob – I’ve had clients who did the same. Imagine that – single digit interest rates!

    Ush – I’ll see what I can find.

  6. Thomas Johnson

    September 11, 2008 at 1:42 pm

    WSJ is referring to the spread between Treasuries and MBS. For some reason they seem to think that after the Chicoms and the Russians threatened Paulson into bailing them out, that the spread will narrow, all is well, no problem my communist friends, you can buy our mortgage backed bonds once more. With the Chinese economy slowing, they may have less appetite for our debt anyway, but I doubt they will give us those narrow spreads for a long time.

  7. Matthew Rathbun

    September 12, 2008 at 8:36 pm

    Sigh… Jim, I just don’t know anymore. I don’t think a truer thing has been said about all these projections than “shortsighted.”

    Everyone seems to being focused on what to do to fix it “right now.” My question is what processes are being put into place to stop this from happening in the future? We’ve had since the Great Depression to determine a way to stabilize rates and make the mortgage debt issue more sold – no one has been able to do it, so how are these analysis able to tell us anything?

    I almost think most of them will say anything to get published…

  8. Steve Simon

    September 16, 2008 at 6:33 am

    Regarding comment #7
    Mathew your comment is the key that most have missed (in the Government and the Media).
    Not the current problem, but how to avoid a repeat performance in the future.
    I have written (on my blog) for months, that they just keep running from one fresh wound to the next with a bandage; rather than changing the direction the industry was moving in…
    For two years plus FNMA and FHLMC were in trouble. There should have been money set aside for audit of the loans and docs that were producing these results!
    They would have seen much earlier than 2008 that there was significant “Pilot Error” in the banking and appraisal industries.
    Fllorida had hundreds of “Air Loans” (listening to the Chief Attorney from the State’s DBPR at a Licens Law Instructor’s Seminar), they told us in some case $300,000 had been loaned on properties that didn’t even exist! No house, no borrower, just a made up file, hence, “Air Loan”!
    125% LTV financing, seller downpayment gift to the buyer, it goes on and on…
    Just enforce the guidelines that were there, prosecute the fraud and out and out criminal scam and we would be better off in the future.
    I have twenty posts discussing the related topics of appraiser regulation and what should have been done on my site, but I see very little designed for long term improvement.
    They are dooming us to a repeat of this debacle if they don’t jail a lot of people and let a lot of folks lose what was a foolish investment. Trying to erase a mistake usually creates a bigger mess…

Leave a Reply

Your email address will not be published.

Economic News

How small businesses can keep up with the changing workforce

(ECONOMIC) Trade schools are booming as career outlook grows. College enrollment is down. The workforce is changing. How can small business keep up?

Published

on

Trade employees in the workforce

College enrollment has dropped off by three million in the last decade, with a drop-off of one million due in the last several years as a direct side effect of the Covid-19 pandemic. This phenomenon clearly does not bode well for the future of the United States’ economy and workforce, with students who attend low-income schools and come from low-income families being the most affected. These changes are disproportionately affecting students from low-income schools and families, the very people who need higher education the most, and are erasing much of the work done in the last decade to help close the income and race gap between students, colleges, and socioeconomic backgrounds.

Enrollment in trade schools is skyrocketing.

Recently, trade schools have seen a 40% bump in enrollment across the board. Many students are enticed by the fact that trade schools are affordable and offer a quick turnaround, with students paying $16,000 or less for their program, and their training taking a year or less to complete. Beyond that, those who complete trade school is all but guaranteed a job on graduation day. Their earning potential is often two or even three times higher than the initial cost of attending the program. As many have found, the same cannot always be said about those who pursue a college education.

While the average cost of college at an in-state and public institution hovers at around $28,775 per year (according to Forbes) and takes an average of four years to complete means that trade students have a cheaper educational cost, (between $16,000 to $33,000 for the entire program, or about equal to just one year of a public college tuition) can get work in their field more quickly, and can usually make more than their educational costs in their first year on the job. Tradespeople make an average of $54,000 fresh out of trade school, which rivals the role average college student’s first salary of $55,000. It’s no wonder so many people are choosing to forgo a formal education for trade school!

The almost insurmountable cost of college combined with ever-growing inflation and a lengthy list of requirements just to get a post-college job, all for a low salary and with students having hefty loans to pay back, also play a key role in the downturn in the popularity of college.

The implication of fewer college-educated people, however, means that over time, the United States as a whole could face an economic downturn, as it gives rise to many more blue-collar workers. This can irrevocably alter the makeup of the workforce. Despite current unemployment rates being among the lowest they’ve ever been, the American people are already starting to see a shift in the labor market.

Already, we see a strain in the labor market when 25% of skilled workers in the U.S. exited the workforce following the Covid-19 pandemic. The economy has become so highly specialized that if the U.S. were to keep up the trend of losing college-educated workers, there could irreversible damage to the United States’ economy, deepening the ever-growing divide between the middle class and the working class, further reducing the ability to affect the global economy, knocking the United States out of the classification of a “global superpower.” To make matters worse, much of the United States labor pool is outsourced, and we are seeing the rise of artificial intelligence and robotics taking over many jobs, especially minimum wage jobs. While none of these factors alone vastly affect the U.S. labor market, this is only the tip of the iceberg.

So what can employers do when the makeup of the workforce starts to shift?

Employers could shift the focus on the years of experience rather than the type of education the potential employees have, as well as offering more extensive on-the-job training, which is already commonplace in some industries. Even for those with a college education, the requirements for entry-level jobs seldom match the salary, with many employers requiring a four-year degree, two or more years of experience, and fluency in different programs which vary from company to company. Employers, if possible, need to offer higher salaries with fewer requirements, as many young people are finding the pursuit of college, plus the various other requirements just to be considered for a barely above minimum wage job, while they’re drowning in student debt fruitless, so they forgo college altogether.

A post-pandemic society looks vastly different, and employers must adapt to keep up.

Continue Reading

Economic News

Boomers retirement may be the true reason behind the labor shortage

(ECONOMY) Millennials and Gen Z were quick to be blamed for the labor shortage, citing lazy work ethic- the cause could actually be Boomers retirement.

Published

on

Older man pictured in cafe with laptop nearby representing boomers retirement discrimination.

In July, we reported on the Great Resignation. With record numbers of resignations, there’s a huge labor shortage in the United States. Although there were many speculations about the reasons why, from “lazy” millennials to the number of deaths from Covid. Just recently, CNN reported that in November another 3.6 million Americans left the labor force. It’s been suggested that the younger generations don’t want to work but retiring Boomers might be the bigger culprit.

Why Boomers are leaving the labor force

CNN Business reports that 90% of the Americans who left the workplace were over 55 years old. It’s now being suggested that many of the people who have left the labor force since the beginning of the pandemic were older Americans, not Millennials or Gen Z, as we originally thought. Here are the reasons why:

  • Boomers are more concerned about catching COVID-19 than their younger counterparts, so they aren’t returning to work. Boomers are less willing to risk their health.
  • The robust real estate market has benefitted Boomers, who have more equity in their homes. Boomers have more options on the table than just returning to work.
  • Employers aren’t creating or posting jobs that lure people out of retirement or those near retirement age.

As Boomers retire, how does this impact the overall labor economy?

According to CNN Business, there are signs that the labor shortage is abating. Employers are starting to see record number of applicants to most posted jobs. FedEx, for example, just got 111,000 applications in one week, the highest it has ever recorded. The U.S. Bureau of Labor Statistics projects that the pandemic-induced increase in retirement is only temporary. People who retired due to the risk of the pandemic will return to work as new strategies emerge to reduce the risk to their health. With new varients popping up, we will have to keep an eye on how the trend ultimately plays out.

Continue Reading

Economic News

Is the real estate industry endorsing Carson’s nomination to HUD?

(BUSINESS NEWS) Ben Carson’s initial appointment to HUD was controversial given his lack of experience in housing, but what is the pulse now?

Published

on

NAR strongly backs Dr. Carson’s nomination

When President-Elect Donald Trump put forth Dr. Ben Carson’s name as the nominee for Secretary of Housing and Urban Development, NAR President William E. Brown said, “While we’ve made great strides in recent years, far more can be done to put the dream of homeownership in reach for more Americans.”

At the time of nomination, the National Association of Realtors (the largest trade organization in the nation) offered a positive tone regarding Dr. Carson and said the industry looks forward to working with him. But does that hold true today?

The confirmation hearings yesterday were far less controversial than one would expect, especially in light of how many initially reacted to his nomination. Given his lack of experience in housing, questions seemed to often center around protecting the LGBT community and veterans, both of which he pledged to support.

In fact, Dr. Carson said the Fair Housing Act is “one of the best pieces of legislation we’ve ever had in this country,” promising to issue a “world-class plan” for housing upon his confirmation…

>>>>>Click to continue reading…<<<<<

#CarsonHUD

Continue Reading
Advertisement

Our Great Partners

The
American Genius
news neatly in your inbox

Subscribe to our mailing list for news sent straight to your email inbox.

Emerging Stories

Get The American Genius
neatly in your inbox

Subscribe to get business and tech updates, breaking stories, and more!