Why a Housing Shortage Is a Threat to the Economy
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What is the main topic discussed in this episode?
This is Your Money Matters from The Wall Street Journal.
Welcome to Your Money Matters. I'm J.R. Whalen in New York.
Why are U.S. housing prices still rising despite economic stability?
Housing prices continued their climb in November, notching a 6.2% jump over November of 2015. And while that wasn't a surprise, is a housing shortage something worth keeping an eye on? Wall Street Journal reporter Laura Casisto joins us to discuss. So, Laura, let's start with the home prices. The 6.2% increase we mentioned is a national average, but cities in the western U.S. have seen the most strength.
Which U.S. cities are experiencing the strongest home-price gains and why?
Yeah. And so these are cities where, really going back for the last couple of years, we've seen, in many cases, double-digit increases. And it's really a perfect example of what's going on around the country, where you have an influx of young tech, a lot of, and often cases, technology workers, where you see wages rising. Essentially, you see a very strong economy, but you've seen very little new construction in these areas. And it's really sort of a perfect storm, creating these price increases.
You know, people you talk to said that the demand for housing is not going to let up anytime soon, but it seems like the health of the economy is hinging on the addition of new housing inventory.
Right. Absolutely. So right now we're seeing home prices grow at about twice the rate of wages and about three times the rate of inflation. And so over time, that just puts pressure on households. That means that even if you're making more money, you won't feel like it because your housing costs are going up so quickly. So it's a real critical economic issue going forward.
How is limited new construction contributing to the housing shortage?
And it's pricing a lot of people out of the market.
Yeah, absolutely. So we generally saw a pretty weak market this year in terms of the volume of sales. And that seems to be a reflection of people really either struggling to get into the market and buy their first home or people who already own a home looking around and saying, you know what, I just don't want to deal with this. I'm going to stay in place.
We're speaking with The Wall Street Journal's Laura Cusisto, and you're listening to Your Money Matters from The Wall Street Journal. Welcome back, everybody. So, Laura, the upward price trend, that's likely to continue. And you have higher income millennials starting to buy houses, some in the tech sector, as you mentioned earlier. And the low mortgage rates are spurring that on as well.
Yes, although I think we'll probably see mortgage rates start to rise this year, so that's going to be a headwind. But certainly last year, we had still pretty historically low mortgage rates. We had wage growth finally starting to pick up, and we had millennials starting to mature into the age of homeownership. So we actually, in 2017, saw a big jump, in statistical terms, about a one percentage point jump in homeownership among millennials.
How are home-price increases affecting household budgets and buying decisions?
You know, we've seen mortgage rates perk up and we see them come back down to remarkably low levels. How should we be able to glean that they're going to come up again?
Oh, I don't know.
I mean, I don't want you to be a fortune teller, but what is it that leads you to believe that you think that they will start to rise?
I think the consensus is because the Federal Reserve is certainly going to start raising interest rates this year. And there's not a kind of one-to-one correlation between that, but there's sort of a consensus that that is going to have to start rising. putting so upper pressure on mortgage rates. And of course, also the reason why the Fed is raising rates is a reflection of the economy starting to really kick into that higher gear. And so that usually leads mortgage rates to rise as well.
And a significant piece of data that came out this week was not just homeownership among millennials, but in general, homeownership rates have turned around.
Yeah. So that was a huge, huge piece of data yesterday that I don't think any of us were actually really expecting necessarily, which is that for the first time since 2004, the homeownership rate actually climbed last year.
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Chapters
7 chapters
1
What is the main topic discussed in this episode?
0:02–0:13
2
Why are U.S. housing prices still rising despite economic stability?
0:13–0:38
3
Which U.S. cities are experiencing the strongest home-price gains and why?
0:38–1:41
4
How is limited new construction contributing to the housing shortage?
1:41–2:54
5
How are home-price increases affecting household budgets and buying decisions?
2:54–4:20
6
What trends explain rising millennial homeownership and mortgage-rate risks?
4:20–5:21
7
How did post-recession inventory changes create today's low vacancy rates?
5:21–6:00
Speakers
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