Financial Intel Monthly

The Markets (as of market close June 18, 2021)

The housing market has been on fire recently and many Americans are becoming concerned we may be in the midst of another housing bubble. 

The Markets (as of market close May 28, 2021)
Stocks were volatile in May, likely a reflection of strength in the U.S. economy as well as concerns about inflation and the timing of when the Federal Reserve might begin to taper its accommodative policies. Regarding inflation, members of the Federal Open Market Committee acknowledged that prices may run higher than the 2.0% target set by the Committee due to transitory supply-chain bottlenecks, which are expected to fade.

Housing Demand

Housing Demand can be best explained with the two phrases "4 + 4" and “big is back”. Sellers are seeing 4 offers in 4 days. According to real-estate provider Showing Time, there were 10 home showings on average per active listing in 129 markets in March by high credit score borrowers, with sizable down payments. This is the exact opposite of the subprime housing boom. Buyers are leaving the cities and going big with more square footage. According to the 2021 Coldwell Banker Survey, more square footage was the number one amenity buyers wanted in 2021. Demand for homes over 5,000 square feet jumped 17% nationally.

By one estimate, U.S. landlords were owed about $57 billion in unpaid back rent at the beginning of 2021. The average household that fell behind owed about four months of rent, or $5,600. Altogether, more than 10 million U.S. families were facing the possibility of eviction.[1]

The real estate market has been appreciating through the pandemic and homeowners became $2 trillion richer in the first three months of 2021.  When drilling down to the largest metropolitan areas in the country, active listing prices grew an average of 7.4% in May 2021 compared with May 2020, lower than the housing price appreciation of 11.6% in April. This brings back the concern that we are in another 2007 housing bubble. 

Replacement/Reproduction Costs

Replacement/Reproduction Costs are rising as government regulation and permit processes make it more expensive buying land and more expensive to build. Inflation is hitting wages as builders cannot find enough workers, forcing builders to now pay 40% more than in 2019.

On April 28, 2021, the White House released a fact sheet for President Biden's American Families Plan (AFP), which proposes about $1 trillion in investments and $800 billion in tax cuts. There would also be tax increases for those making more than $400,000 per year. Major provisions proposed in the plan are summarized here, including some tax provisions.