Housing | timiacono.com - Part 2

Big Usually Means Ugly

According to this LA Times story that was accompanied by the somewhat disturbing graphic reproduced below, after a short absence, McMansions have returned to Southern California.

The report opens with the instant classic “When the going gets less tough, Americans get stupid.” And it gets better from there, prompting some mid-2000s flashbacks from yours truly who sold a couple years before home prices peaked in the Golden State and had to sit back, as a lowly renter, and watch it all play out in slow motion.

If they’re doing what they did last time, it’s not just the size of the house that boggles the mind, it’s the ratio of the size of the house to the size of the lot which, in many cases made people like me just stop and laugh loudly when passing by.

Amazingly, being able to reach out the window of your 4,000 square foot home and shake hands with your neighbor who’s doing the same thing doesn’t bother some people.

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Housing Starts, Permits See Big Rebound

The U.S. housing market received some rare good news this morning as the Commerce Department reported(.pdf) that housing starts and permits for new construction both exceeded analysts’ estimates by wide margins, though the gains were due largely to multi-family home construction as activity for single-family homes was little changed.

Housing starts jumped 13.2 percent, from an upwardly revised annual rate of 947,000 units in March to 1.07 million units in April, far above expectations for an increase to a rate of 980,000 units and some 26.4 percent higher on a year-over-year basis.

Housing permits rose 8.0 percent, from an upwardly revised rate of 1.00 million units in March to 1.08 million units in April, considerably better than expectations for an increase to a 1.02 million rate and 3.8 percent higher than a year ago.

In both cases, the surge was due almost exclusively to volatile multi-family home building (of five or more units) where starts jumped 39.6 percent and permits rose 19.5 percent. Single-family home starts rose just 0.8 percent last month and permits edged 0.3 percent higher, making the headlines for this report much less than meets the eye.

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Here’s the data on student loans and home ownership that’s been getting a lot of attention in the last day or so in chart form from its original source at the New York Federal Reserve.

Just in case it isn’t already obvious, many of those youngsters aged 27  to 30 who should be most able to buy property because they went to college and are making more money than they would otherwise are not doing so, in part at least, due to their student loan debt.

What’s really surprising about this is that, over the last few years, the implied home ownership rate of those with student loans has actually fallen below those who have no student loans, a group that, presumably, includes lots of college graduates who got through college with little or no debt along with those who never felt the need for higher education.

Of course, the bigger picture here is that overall home ownership amongst the younger set has fallen precipitously since the financial crisis, dropping by nearly a third, from over 30 percent to just over 20 percent.

Late last week, I chatted with Cory Fleck of the Korelin Economics Report and, instead of the usual subject of precious metals, we talked about a few unrelated topics that have a lot in common with each other, namely, the remarkable rise in Canada home prices over the years that has been accompanied by surging personal debt and financial literacy around the world.

The .mp3 file is again available here at the blog – just click on the image to the right – or you can go directly to this page over at KER.

It really has been a remarkable transformation for our neighbors to the north as property buying from overseas, a banking system that is fundamentally different from the one we have in the U.S., and an extended boom in the natural resource sector have combined to help keep home prices aloft. When factoring in an increasing appetite for personal debt, this has resulted in what seems to be an unstoppable housing market, though it’s important to remember that nothing keeps going up forever.

The chart below from this earlier item tells the story better than words can.

We also talk about a similarly disturbing trend, this one on financial literacy around the world from this earlier item and we both lamented the fact that financial literacy data for Canada was not available so that it might be viewed in context with the charts above.

[To access commentary that Tim only shares with subscribers, join Iacono Research.]

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