The Wall Street Journal published a report on the state of the U.S. home sales market. Wow…we’ve reached a peak not seen since February 2007. Existing housing supply, which is now at 4.3 months, is much shorter than the 6-month supply that’s often considered the sweet spot. When the supply duration drops below 6 months, housing prices usually increase since there are more buyers than sellers. For those readers that have experienced tight housing supplies, it’s a bit unusual and surreal. Consider listing your house for $350k and by day-end you’ve recevied 3-5 offers, all well above your asking price. Markets in California and New York City occasionally operate like this, but it’s unusual in the country’s heartland.
US Existing-Home Sales Highest Since February 2007
As can be seen in the article, the housing market continues to be robust, this, combined with low unemployment, reflects a strong economy. It also often reflects an economy that may be reaching a point for a slowdown. Housing is usually a lagging indicator. In other words, by the time that home buyers have enough money to bid up prices, inflation increases and the Federal Reserve will rain on the economic parade by increasing interest rates. This in turn increases the cost of buying a home so fewer buyers can afford a new home and prices decline, once again. Understanding economics can often seem elusive.
While it impossible to predict the economy, for many Americans life has never been better. The devil will be in the details of the Trump administration. He has espoused tariffs and restricted trade while lowering taxes and increasing spending on the military and infrastructure. These goals provide a wonderful basis for increasing budget deficits and, in the short-term, less growth for companies that export their products and services.
Let’s forget politics and economics for a week. Eat too much and enjoy the company of those around you. Happy Thanksgiving.
The Berkeley, Inc. Team
A Closer Look at Federal Income Taxes by Fernando Martin
The Federal Reserve has done a nice job of illustrating how the varying household income levels and corporations pay taxes and which groups are most able to increase tax revenue. This is particularly important with President-elect Trump and a Republication Congress preparing their budget for the coming year. Current proposals would lower incomes taxes on high income earners and corporations which will greatly increase the federal budget deficit. The hope is that lower taxes will spur economic growth so employees and employers earn more and eventually pay more in taxes.
Most of this short, but dense, article nicely explains how much of the tax revenues are paid by the top 1% income earners. This article also includes payroll taxes which are often neglected in political discussions. These taxes are paid by the company or business on behalf of the employee. The employee doesn't see this directly, but they are extremely important since this tax is paid into medicare, social security and social insurance (entitlements). So these taxes are a significant portion of the money that will eventually provide income and healthcare in retirement.
As an aside, I find the term "entitlements" often misused in policy debates. Entitlements have been earned by payments to the government from individual tax payers and employers. So, it's understandable when either political party intends to reduce these benefits and senior citizens or people with disabilities strongly object.
Occasionally we like to post articles that give you some insight into how we form our opinions or stay informed.