Current US Housing Market

Current US Housing Market



Hello!I hope this finds you well. Today is
Friday, May 26, 2017 and in about 4 minutes, I will share with you a brief overview of
the markets last month, and I'm going to share some thoughts on the current state of the
housing market here in the U.S.   Stocks added to year-to-date gains in April
as the S&P500 returned 1% for the month, bringing the total 2017 return to 7.2%.  On a total
return basis, April's gain marked the sixth straight positive month!  Gains were primarily
driven by the favorable outcome of the first round of the French election and a very strong
start to earnings season.  Markets have been incredibly resilient in general – able to
shrug off some soft economic data that we've gotten, as well as increasing skepticism in
the Trump administration's ability to achieve its pro-growth agenda – not to mention escalating
conflicts with North Korea and Syria.   International stock markets produced solid
gains in April, as both the MSCI EAFE Index, which is developed international stocks, and
the MSCI Emerging Markets Index – both outperformed the S&P500 Index with US-dollar based returns
of 2.6% and 2.2%, respectively.  Both indices actually remain ahead of the S&P500 year to
date.     In the bond market, treasury yields fell across
most maturities in April; leading to a very positive month for bonds overall.  The broad
Bloomberg Barclays Aggregate Bond Index returned 0.8% during the month.   For the remaining 2 minutes or so, I want
to provide a quick update on the state of the housing market here in the U.S.  Housing
is an incredibly important part of our U.S. economy. It accounts for approximately 15%
of gross domestic product (GDP) if you include money spend on construction, maintenance,
and rent – including owner-imputed rent, which is essentially the rent you would pay to live
in the home you own.  Home equity also accounts for approximately 15% of the average household's
net worth.   Housing prices surpassed the all-time high
levels reached 10 years ago in November of 2015, and have been moving higher since, but
it is important to remember that the market is very different today than it was a decade
ago for a few reasons: first, as you can see in this chart even though prices have increased,
home affordability is high relative to historical levels, thanks to low mortgage rates.  The
opposite was true in 2007.  By the way, housing affordability is the ability of a household
with a median income to afford the payments on a median-priced home at current mortgage
rates. Second, overbuilding, which emerged five years
before the Great Recession, is a trend that is not present today.  This chart shows the
cumulative difference between growth in housing stock and housing formation.  As you can
see, the number of households formed has increased by more than housing stock has during this
cycle.   The last factor I want to bring up that is
about to hit the housing market is the next demographic wave, the millennials, are about
to enter their peak housing consumption years (which is historically happens around 31 years
old).  Now, despite the popular perception of millennials living in their parents' basements
forever, there are more than 80 million people in this demographic group, and the reality
is eventually they will require housing.        So a few reasons why the current housing market
is not experiencing, at all, the same excesses that contributed to the crash in 2008.
         Thank you for taking the time to watch this,
and as always, if you have any questions, please feel free to reach out. Take care!

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