9 reasons why the housing market risks hitting a perfect storm:
There is no better barometer on the health of the U.S. economy than housing. It’s an industry that encompasses a myriad of vital sectors — banking, manufacturing, commodities, international trade, transportation and, of course, consumer spending. So it’s not surprising the Federal Reserve closely monitors housing trends in the course of setting monetary policy.
Early this month, the government reported that new-home sales dropped 6.9% in January to a 607,000 annual rate, which happens to be 4.1% below its year ago level. Not a great start to 2019. Sales crept up a disappointing 2.2% all of last year. A second factor are the new limits the White House placed on immigration into the U.S. The number of immigrants receiving green cards fell 5% in 2017 from the year before. The administration’s goal is to slash legal immigration by half. Keep in mind that immigration has historically contributed more than 50% of this country’s population growth. If you substantially restrict foreign entry into the U.S., you remove another important source of home buying.
3. The 2017 Tax Act also increases the after-tax cost of homeownership, especially in regions of the country where residents face high state and local taxes. Prospective home buyers have since recalculated the cost of homeownership versus renting.4. With household debt reaching an all-time high of $13.
What this suggests is that investors will demand a more attractive return that is commensurate with the risk of carrying an excessive amount of new U.S. debt on their portfolios. Stated another way, the Treasury department will pay whatever rate the market demands in order to successfully unload an unprecedented volume of new debt issuances.
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