More Millionaires Than Houses for Sale

  • A typical political move…
  • $5 million per house…as an average!
  • Plus, why you can sleep a little easier…

Well, that was quick!

Last week, we speculated on an idea. It was this: A proposed property tax in New York could be the thing to send that market into a final, full-blown crunch.

Now the Governor of New York appears to be backing away and proposing a different tax instead[1].

How typical of a politician. One minute they’re telling you about how great their current policy is. Then someone gets in their ear. And it all changes again.

We’ll keep watching. New York property may soon crumble anyway.

But all these political shenanigans do provide a springboard for a deeper look into US real estate.

I know. We’re Aussies.

But this is the market that brought the world economy to its knees 10 years ago.

It pays to keep tabs on what’s happening here…

I can’t stress that enough, by the way. US consumption is the most powerful force in the world economy.

And that is inextricably linked to the health of the US housing market.

The mainstream media will constantly prattle on about the swings in the US share market.

But only the wealthiest 10% of US households own stocks. The majority of middle-class wealth is tied up in housing.

The health of the US housing market is also related to the moves in interest rates we’ve seen over the last 18 months.

For a while in 2018, it appeared as if the Fed was going to choke the US property market with high rates. Sales and building activity cooled as the oxygen in the market came down.

The hard, cold fingers of Fed Chair Jerome Powell have since retreated. 

Long-term rates — including for mortgages — have retreated.

What else can we see?

The Wall Street Journal reports that the ‘exurbs’ are back[2].

I had never heard of this word before. Apparently, it refers to a prosperous area beyond a city’s suburbs.

A lot of these places got smashed in the bust of 2008. It was here where the low-doc buyers got their foothold on the fabled ladder.

The Journal now calls it the engine of the US housing market.

Rising land values in the major metropolitan areas are pushing people out further in search of cheaper areas to live.

No wonder…

No change from US$5 million

For example, the upcoming IPOs of Uber, Lyft, Slack and Airbnb are going to mint even more millionaires — possibly thousands — who want to live in a city like San Francisco.

A single family home in this city could shortly average US$5 million, according to one estimate cited in The New York Times[3]. That’s not all. They’ll likely be paying cash for the lot.

There were only about 2,200 single family homes sold in San Francisco last year.

There may be more new millionaires around than houses to buy in 2019!

This is hardly the experience of the typical American. Hence the rise of the exurbs again.

Millennials and retirees are the main buyers. Those are the two biggest demographics in the US.

They’re prepared to commute long distances if need be.

This should keep the construction industry busy for a long time. 

US builders are still struggling to get back to the pace they had before the big wipeout.

The US has been underbuilding for years, thanks to tight credit and the aftermath of 2008. See for yourself…

Source:The Wall Street Journal

It’s not enough. Two million households were added in America last year, but only 1.2 million new homes were put up.

I’m not saying a new boom is on the cards. But the above is one reason I don’t stay awake at night wondering if another ‘2008’ will happen anytime soon.

The housing market over there looks to be on fairly solid footing. There’ll be big regional variations, and periods of weakness (like New York, perhaps) and strength. 

But I don’t see any nationwide meltdown happening.

There’s a further clue here as to how much wealth there really is in America.

Equity in housing was US$6 trillion at the end of the second quarter last year — about a third of US GDP. 

It’s likely higher now.

This is more important than most realise. Most people think 2008 was a ‘financial’ crisis.

Indeed, that was certainly part of it. But the real estate bust came first. It was this that set off the earthquake worldwide.

A healthy real estate market suggests no tremors anytime soon.

Best wishes,

Callum Newman Signature

Callum Newman,
Editor, Profit Watch