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.
While the Wall Street Journal editorial pages are as conservative as the editorial pages of the New York Times are liberal, most of the information posted by their staff journalists is relatively unbiased. The article being posted with this blog provides the best summary we’ve found of the positions by Trump and Clinton regarding the primary financial institutions and their regulation. It’s 13 pages long but it’s a thorough and balanced overview.
Where They Stand on Wall Street
I've been refraining from posting articles or offering comments on the presidential nominees until more information was provided. As usually happens, the candidates initially say as little as possible about specifics, because it provides journalists and analysts with time to more thoroughly vet them. The article from the Wall Street Journal is the first one I've seen from this publication. I suspect that Clinton's proposed trade policies will be forthcoming shortly.
Trade policies can be particularly difficult to evaluate because common economic theory doesn't always work in practice. And there are frequent unintended consequences that are not know until they appear. In addition, the assumptions made are usually refuted. But we still need to try to predict and evaluate the proposals made by the candidates and political parties. The Wall Street Journal is hardly a bastion of left-wing radicals, so I tend to think that their reporting and conclusions should be serious considered when evaluating a conservative presidential candidate. The basic conclusion is that trade tariffs would likely produce the opposite effect of what I (and the author) believe Donald Trump intends.
When we find something pertaining to Hillary Clinton's stance, we'll post it.
Donald Trump's Tax Pitch Could Miss Trade's Strike Zone
In another example of the advancement of the U.S. economy, Case-Shiller published the statistics on housing prices in the major metropolitan areas in the country. This index is a common measure that is touted by most of the major news sources and business publications such as the Wall Street Journal, Forbes, Fortune and the Disneyland Weekly.
If you only want the cliff notes version, then here's the conclusion: U.S. residential real estate continues to advance in nearly all the major geographic areas. Portland, OR leads the group with a 12.4% year-over-year gain, but Seattle and Denver were also strong. The index that reflects the Case-Shiller measure is just shy of the record set in late 2006.
This measure does not measure residential real estate in the smaller areas found int he Midwest or plains' states. We suspect that this helps illustrate the divergence in financial gains between the major coastal states and those in the center of the country.
If you were reading carefully and wanted to know how to subscribe to the Disneyland Weekly you'll be disappointed. It doesn't exist.
Home price gains in July slow according to the S&P Corelogic Case-Shiller indices
Mike & the Berkeley team
Occasionally we like to post articles that give you some insight into how we form our opinions or stay informed.