Assorted facts:

• Those people who have credit card debt owe an average of $15,654.
• About 58 percent of them (about six in 10)have enough savings to pay off the debt,
• About 21 percent (about one out of every five) say they don’t have enough savings to pay off credit card debt.
• Total credit card debt is now at $1.023 trillion, higher than the pre-recession 2008 level of $1.022 trillion.
• $1.48 trillion is owed in U.S. student loan debt with 44.2 million Americans having student loan debt and the student loan delinquency rate at 11.2% (90+ days delinquent or in default)
• Median price of a new home is now at $335,000, an existing home is $320,000.
• The number of homes available at less than $100,000 fell 13 percent in January compared to a year earlier.
• The number of homes priced $100,000 to $250,000 fell more than 2 percent.
• The number of homes $500,000 to $750,000 rose 12 percent.
• There is a “marginal easing” of mortgage loan requirements with a drop in the minimum credit score and an increase in the maximum debt-to-income requirements to 45 percent from 40 percent.
• There are now mortgage loans available with zero to 3 percent down payments.
• The median annual income is now $59,039.

All these assorted facts together and it look as if they are unrelated, but they are.  We’ll look at how and what they might mean.

Friday, March 9, 2018 marked the ninth anniversary of the bull stock market.  Adam Shell, writing in USA Today believes it “is most likely in its final stages.”  What will bring the bull market to an end?  Experts can only speculate, but many agree that something will end it and before too long.  Everything is rosy on the surface now, but personal debt, home prices, and lowering of credit requirements for home purchases promise that the rose is wilting.

Look at mortgages now.  The average mortgage interest rate is 4.65 percent.  With the median home price of $320,000 for an existing home or $335.000 for a new home, the annual income required to purchase one of those is at least $75,200 assuming  a 20 percent down payment and an average car, credit card, and student loan payments of $1500 per month ($1,000, $200, and $300 respectively).  With a zero percent down payment, the income required to buy a house is $84,000.  But the median household income is $59,030 reports the Census Bureau.  That income will buy only a $138,400 home, a long way from buying a median-priced home and a long way from buying any home since there are fewer and fewer “lower-priced” homes available.

In addition, rents continue to increase so that renters have to use more and more of their income to pay the rent, making saving for a down payment problematic, especially with credit card debt, car payments, and student loan payments.   Rents will continue to rise until the supply of rental housing catches up with the number of people who need to rent.  But that won’t come soon.

Harvard University’s Joint Center for Housing Studies (JCHS) reported last fall “Vacancy rates across rental product at 30-year lows.” They remained under 3percent in 20 of the 100 markets tracked by RealPage.

The report  continues “Driving the tight market is a broad-based surge in rental demand that began in 2005. Since then, the U.S. added nearly 10 million renter households, many of which include older adults, families with children and high-income households. Those are demographic segments which traditionally preferred homeownership.”

“Even though we have been adding more rental housing, it’s not enough to keep up with demand,” JCHS director Chris Herbert said in a webcast on the report. “The result is … rents are going up because we don’t have enough supply.”

At what point will mortgage standards be lowered enough so these would-be homeowners can buy a home?  And then, how long will it be before the housing market implodes as a result of the lowered standards?

How to solve this problem of high debt and out-of-reach housing?  That is something that has no immediate solution.  There are too few construction workers to build the housing necessary to create a large enough supply and wages are barely keeping up with what little inflation there is.  Home Depot has even begun a $50 million program to train 20,000 construction workers.  Too little, too late.  The industry needs 158,000 and Home Depot’s program will add only 2,000 per year. Robert Dietz of the National Association of Home Builders says that 900,000 homes will be built this year but that 1.3 million are needed to make up the deficit.

The problem will eventually “solve” itself with an economic downturn.  The signs are all there.  And as Adam Shell reported, this bull stock market is likely in its last stages.

The eventual solution with the economic downturn will bring job layoffs and business failures. These are important considerations when hiring employees and selecting renters.  How long can someone afford to live in his or her rental home at current income with not even a glimmer of hope of buying a home?

By Robert L. Cain