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US Housing Has Bottomed
So says Bill McBride, author of Calculated Risk. In my opinion, his blog is the single best source for information on the US housing market. I’ve followed his blog for years, and can’t think of a single time he’s been wrong.
First there are two bottoms for housing. The first is for new home sales, housing starts and residential investment. The second bottom is for prices. Sometimes these bottoms can happen years apart.
For the economy and jobs, the bottom for housing starts and new home sales is more important than the bottom for prices. However individual homeowners and potential home buyers are naturally more interested in prices. So when we discuss a “bottom” for housing, we need to be clear on what we mean.
For new home sales and housing starts, it appears the bottom is in, and I expect an increase in both starts and sales in 2012.
And it now appears we can look for the bottom in prices. My guess is that nominal house prices, using the national repeat sales indexes and not seasonally adjusted, will bottom in March 2012.
There are several reasons I think that house prices are close to a bottom. First prices are close to normal looking at the price-to-rent ratio and real prices. Second the large decline in listed inventory means less downward pressure on house prices, and third, I think that several policy initiatives will lessen the pressure from distressed sales (the probable mortgage settlement, the HARP refinance program, and more).
Of course these are national price indexes and there will be significant variability across the country. Areas with a large backlog of distressed properties – especially some states with a judicial foreclosure process – will probably see further price declines.
And this doesn’t mean prices will increase significantly any time soon. Usually towards the end of a housing bust, nominal prices mostly move sideways for a few years, and real prices (adjusted for inflation) could even decline for another 2 or 3 years.
But most homeowners and home buyers focus on nominal prices and there is reasonable chance that the bottom is here.
American Income Inequality
By now most people have heard about rising income inequality in the US. Looking at the data, it’s clear that the people at the top have done much better than the middle class in recent decades.
Between 1979 and 2007, inflation adjusted after-tax incomes for the bottom fifth of Americans have increased 16%. For the middle fifth, income gains have been slightly higher at 25%. But for the top fifth (and especially the top 1%) the gains have been dramatically higher. How did this happen?
The US Federal Reserve keeps data going back to 1947 for American productivity and compensation.
Between 1947 and the early 1970’s, worker compensation kept pace with increases in productivity. Beginning in the 1970’s, however, the average worker began to fall behind. The latest figures show that worker compensation is now 33% lower than it would have been – had it kept pace with productivity. Where did that 33% go?
Returning to the income differences between 1979 and 2007, we can calculate what incomes would have been without the increase in income inequality.
Doing this, we find that incomes for middle and lower income households would be between 23% and 34% higher than they are now – roughly in line with the gap between compensation and productivity. It seems that a large part of income inequality can be explained by the people at the top receiving most of the productivity gains since the 1970’s.
North American Economics 