Choosing the right house and mortgage

It’s Just The Facts: August 2019

CR Money InlineHero Shop for mortgage as rates rise 10 18

  1. THE ECONOMY AND THE WHITE HOUSE – There have been just 2 US presidents in the last 75 years who were elected to a first term in office who failed to win their re-election bid for a 2nd term – Jimmy Carter in November 1980 and George H.W. Bush in November 1992. Our nation’s GDP fell 0.3% in 1980 but grew +3.5% in 1992. Gross Domestic Product (GDP) is the annual market value of all goods and services produced domestically by the US (source: Commerce Department).
  2. DURING THE LAST RECESSION – The price of crude oil fell 77% over a 5.5 month period during 2008, dropping from $145.29 on 7/03/08 to $33.87 on 12/19/08 (source: New York Mercantile Exchange).
  3. WHAT THE FED USES – The government measures inflation in 8 major categories and then weights them to produce an overall CPI total. The largest weighting in the CPI market basket is “housing” (42%) while “medical care” makes up only 8% of the index. The Federal Reserve prefers to measure inflation using the PCE index, i.e., “personal consumption expenditures.”  “Housing” is given a 24% weighting in the PCE index while “medical care” makes up 22% of the PCE index.  The consumer price index (CPI) and the PCE index are measurements of inflation compiled by the US Bureau of Labor Studies (source: Department of Labor).
  4. WHERE WE LIVE – 40% of American homeowners, i.e., 31.4 million out of 78.5 million, own their primary residence free and clear of any debt, i.e., no outstanding mortgage debt or home equity loan. The 31.4 million homeowners with zero housing debt represent 26% of the 122.4 million households in the United States today, the latter total including 43.9 million households who are renters and not owners (source: Census Bureau).
  5. GROWING POPULATIONS – From 1970 to 2019, San Jose has gone from the # 31 largest US city to # 10, and Phoenix has gone from # 20 to # 5 (source: Census Bureau).
  6. I’M ALL DONE WITH MY WORK – An average American worker has increased his/her productivity by +97% in the last 35 years, i.e., an average worker can complete in 1 hour as of 12/31/18 the same amount of work that it took him/her 2 hours to finish as of 12/31/83 (source: Department of Labor).
  7. I QUIT – 3.43 million American workers quit their jobs in June 2019. A decade earlier, just 1.79 million American workers quit their jobs in June 2009 (during the nation’s 2008-09 recession). A higher “quit level” is indicative of a greater level of confidence in finding a new job to replace one’s current occupation (source: Department of Labor).
  8. LAST TIME – The last rate cut cycle by the Fed lasted from 9/18/07 to 12/16/08 (15 months) and saw the Fed cut its key short-term rate by 5 percentage points, i.e., from 5.25% to 0.25% (source: Federal Reserve).
  9. SHOULD WE BUY TODAY? – 70% of Americans surveyed in June 2019 think “it’s a good time to buy a house.” That percentage was as high as 83% in December 2014 and has been as low as 57% in October 2008 (source: University of Michigan Surveys of Consumers).
  10. NOT THE USA – There are 10 countries in the world that currently maintain the top credit rating from each of the 3 major credit rating agencies, including Canada, Germany and Sweden (source: Trading Economics).
  11. PRICEY – The cost of tuition, fees, room and board for the upcoming 2019-2020 school year at Bennington College in Vermont is $72,650 (source: Bennington College).
  12. AT A MINIMUM – 21 of 50 US states have a minimum hourly wage of $7.25 in 2019, the federally mandated minimum wage, including Texas and Pennsylvania. 29 of 50 US states have implemented a minimum wage higher than $7.25, including California ($12) and Colorado ($11.10) (source: National Conference of State Legislatures).
  13. SLOWING DOWN – The US economy has grown by +2.1% per year since 2000 (i.e., the 19 years from 2000-2018), by +2.8% per year since 1975 (i.e., the 44 years from 1975-2018), and by +3.2% per year since 1950 (i.e., the 69 years from 1950-2018) (source: Commerce Department).
  14. BROKE BOOMERS – 12.2% of individual bankruptcy filers were at least age 65 in 2016, i.e., 1 out of every 8 bankruptcies. 2.1% of individual bankruptcy filers were at least age 65 in 1991, i.e., 1 out of every 48 bankruptcies (source: “Graying of U.S. Bankruptcy: Fallout from Life in a Risk Society).
  15. NEED WORK? – 51% of the 2.25 million new jobs created in the United States during the 12 months ending 7/31/19 were produced in just 6 states – Texas (323,300 jobs), California (311,800), Florida (227,200), Washington (102,400), New York (95,500) and North Carolina (75,700) (source: Department of Labor).
  16. THE RISK – The average interest rate paid by the US government on its interest-bearing debt was 2.554% as of 7/31/19. The average interest rate paid on our interest-bearing debt was 3.418% as of 7/31/09 (10 years earlier) or just under 0.9 percentage points higher. Every 1 percentage point increase in the cost of debt on our nation’s $16.2 trillion of publicly held debt is equal to $162 billion of annual interest expense (source: Treasury Dept.).
  17. MOST EVER – Mortgage debt in the United States peaked at $9.29 trillion as of 9/30/08, fell 16% to $7.84 trillion by 6/30/13, and now has climbed all the way back to a new record level of $9.41 trillion as of 6/30/19 (source: Federal Reserve Bank of New York).

18. REAL ESTATE – Builders began construction on 876,000 single-family homes in the United States in 2018, the 7th consecutive year of increasing housing starts, i.e., 2012-2018.  The peak in housing starts (1.716 million) took place in 2005 (source: Joint Center for Housing Studies of Harvard University).

Courtesy of Mortgage Market Guide