The American Housing Payment, for Some…. Scream!!!
Indulge me with a little California flavor here! However, this article below reveals truth and fact on housing and the economy in general.
Read the link below and see the nightmare in which Americans find themselves with regard to how much they must pay for cost of shelter as a percentage of their income. To me, this has always been a very crucial component of American economics.
My basic tenets are simple and are as follows.
Thesis 1 on housing: We simply don't have enough qualified home buyers (excluding cash buyers) to take on the true inventory. Even with rates at 3.5% purchase applications are down year over year. Consider that a full percentage point drop in mortgage rates to historical lows has nevertheless brought us a drop in purchase applications.
Thesis 1 on the economy: The after tax/expenses income Americans have can't sustain a 3% plus GDP in an economy which is supported by consumer spending. Even with low tax rates and low-interest rates our growth has been sub par at best.
All economic theories must finally confront the reality of math. "Facts are a stubborn thing" as John Adam's once said.
And here is the reality of the US economy and why growth and housing has been sluggish for a long time. If you're paying more than 50% of your income on housing, that takes away from spending, saving, 401K investment and paying down debt.
This is why I am very cautious on housing in the long-term because when interest rates rise, we will need much better income growth to off-set the rise in rates than any of us can currently see on the horizon.
The following article is from one of our external contributors. It does not represent the opinion of Benzinga and has not been edited.