It Works Until It Doesn't

The U.S. Housing Market is on Life Support

Is anyone truly convinced wages have caught up to the cost of living? Because I can’t find any evidence that’s the case, especially in my hometown of Nashville where we’ll qualify someone for a mortgage they likely can’t afford, even in the face of a softening labor market.

See for yourself in the Fannie Mae Single Family origination data below.

And believe me- I get it. I’m sympathetic to the fact that people need jobs, but this is just laughable.

And it really doesn’t matter what data set you analyze- HMDA, ACS etc- it all has the same general flavor per above…that is unless someone presents you with some trivial sample size from their cul-de-sac of multi millionaires in a gated community.

Better yet, what happens when these teaser rates wear off after a few years

Melody Wright

? Yep- Nashville has seen plenty of that too, but I’ll keep that to myself. Well, sort of…..

And despite the affordability challenges we’re facing now, a growing share of homeowners (~40%) are mortgage free in the U.S. as I’ve mentioned several times before. Partly explains why many boomers don’t get what the cost of living fuss is all about.

Ongoing Pushback

Needless to say, I can show charts until the end of time, and I’ll still be met with some version of “You’re a doomer Kenny! Everything is fine! Incomes will catch up! Unemployment is low! The labor market is strong!”

No, just no. Things just aren’t great, and fight the urge to take a statement like that personally. Your frustration is misplaced- keep seeing what you want to see.

Recall that we’ve had dual income households for decades- and I even showed that data all the way down to a county level back to 1970 in this post. More to the point, we are a growing nonfamily household country. So if you actually think there is a representative market that has somehow been spared from those growing trends over the past several decades, then I feel sorry for you.

And while the unemployment rate may be low currently (even in Nashville), do people even know how that’s calculated or what qualifies someone as being- say- unemployed or in the labor force? Guarantee if folks looked at some of the iterations of labor force flows (below- national) they may reconsider a statement like that.

Plus we have extremely lopsided job growth that is bias to healthcare and government both in Nashville and across the country. Not to mention gig work and all the outsized international migration we’ve seen over these past few years in particular are distorting the unemployment rate.

And these more timely, sampled estimates of job growth are likely overstated. The lagged, non sampled version of that data which is available thru December 2024 and is historically more accurate suggests private job growth is actually in contraction right now in Nashville. These same general overstatements can be observed nationally too.

Best part? This is all happening while the unemployment rate is at 2.5% not seasonally adjusted as of April 25 in a place like Nashville.

Your world….

Take a real hard look at the unemployment rate (inverted at left) and how it compares to nonfarm job growth (Y/Y right) historically below. Notice how it behaves differently post GFC- so are we really sure the unemployment rate is the bees knees?

Now let’s say you have a job- maybe even 2- chances are you likely can’t afford these higher prices without going into crippling amounts of debt, unless you’re in the top 10%. I have talked endlessly about these dynamics in this post so I won’t repeat myself here.

Look- I’m not suggesting we’ll ever have anything remotely close to resembling equality, but this so called K shaped recovery we’re experiencing is nothing more than a trendy term the affluent throw around so they can delicately sweep material, economic imbalances under the rug just to sleep better at night.

Mixed Signals

And it doesn’t exactly help that previously reliable indicators like low unemployment and jobless claims have people convinced good times are just around the corner.

I fully understand why folks are confused, but at the same time so many people are willfully asleep at the wheel.

Guess what- the unemployment rate can be low and the labor market can be weak at the same time. That’s true for jobless claims too since the share of the unemployed claiming UI benefits (i.e. the recipiency rate) is much lower than it used to be pre GFC because many states including TN have not meaningfully updated the payouts. Plus gig work is more accessible than ever. I firmly believe these 2 dynamics will go down as some of the biggest head fakes this cycle.

Details folks!

And apparently context is long gone at this point- temper your expectations sellers and understand many of you have seen unprecedented returns this past decade. You may be able to squeeze out top dollar in some of these stronger northeast/midwest markets for the time being, but your days are numbered.

Serious question- how in the world can you place an accurate value on your home if you don’t actually know who lives in your area?

Or where money comes from…. maybe your home isn’t selling even if the comps check out because there are larger forces at play…… like-I don’t know- liquidity drying up?! Lending has been in the gutter for a while now- not only in Nashville but all over the country.

As far as I’m concerned, this whole thing is on life support.

And lastly, is it possible we just have too many homes already even if they aren’t throwing up master planned communities on every speck of dirt in say the rustbelt?! Something something the wealth effect...

Maybe, just maybe residential building construction employment- Wall Street’s favorite economic indicator- is screaming loud and clear that we don’t have a structural housing shortage since it went negative Y/Y in December 24 per the QCEW.

Let that sink in.

It works until it doesn’t……

Ok that’s all I got!

-Kenny