Weekly Economic Update-Curve Ball

Another month, another price increase. Are we near an affordability breaking point? We might never know as Freddie Mac publishes more evidence that we could become a nation of renters: Voluntarily.
Every week we publish a round of economic indicators. Home prices, interest rates, job reports are all known knowns. This week we explain a couple that may not be as familiar.

Home prices bumped up another 6.7% on an annual basis in February according to CoreLogic’s Home Price Index. This is 0.1% more than the January 2017 to January 2018 gain, and again raises the issue of when enough will be enough. When will prices reach a point where most buyers, especially first timers, won’t be able to afford a home?

Then this week Freddie Mac threw a bit of a curve ball, releasing a survey that questions whether they even want to.

The company’s spring 2018 Profile of Today’s Renter found an expected majority that thought renting was more affordable than buying and more than a third who said affordability was their main reason for renting, but there was a startling 20% who expressed no interest in owning, up from 13% in just two years.

Even more surprising were those older buyers, the age group which has been the backbone of homeownership, who were perfectly content with renting. Half of Baby Boomers said they did not intend to buy, eight points more than in last August’s survey. Fifteen percent cited affordability, but 35% said they preferred to rent. Among Gen Xers, 31% will continue renting, 19% of them because they prefer to do so.

David Brickman, Freddie Mac’s Multifamily head, called this “an historic shift in preference among older Americans, as they increasingly are choosing the size, convenience and affordability that renting offers over ownership.”

Indicating What?

Ever wonder what some of the indicators we publish each week are indicating? Well, we are going to explain a couple of them anyway. J

The Federal Home Loan (FHL) Bank of San Francisco’s 11th District COFI or Cost of Funds Index, is one of many indices lenders use to determine rates when adjustable rate mortgages reset. The COFI, reported on the last day of each month, is computed from the actual interest expenses reported two months earlier by FHL member banks in Arizona, California, and Nevada.

Another set of esoteric entries are the ISM Manufacturing Index and its ‘Non” partner. These are based on surveys of hundreds of manufacturing and non-manufacturing firms regarding their employment, production, inventories, new orders, and supplier deliveries.

These are leading indicators of purchases and other inputs to meet demand and speak to the ebb and flow of business conditions. When these indices rise, they predict higher stock prices due to higher corporate profits. However, they have the opposite effect on the bond markets (and thus interest rates) because an increase indicates sensitivity to potential inflation.



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