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We have a section today on the seemingly contradictory (1) rising U.S. home prices and (2) declining home ownership. The offset that connects these two is the rapid rise in rents. SeeRising Rents Outpace Wages in Wide Swaths of the U.S. (The Wall Street Journal). More discussion on this article in member section below.
China Slowdown Could End Up Being Good News for U.S. (The Wall Street Journal) Economists say the economic slowdown in China would keep a lid on consumer prices and possibly give a boost to U.S. service industry exporters. Weak demand in China would depress the price of commodities such as copper, oil and steel used in cars, electronics and other consumer favorites. Also, big Chinese firms "would be likely to invest more in the U.S. as returns on investment shrink in China and expand in the U.S." Similarly, some of China’s brightest talent, who are already educated in the U.S., might choose to stay abroad rather than return home if economic prospects in China fade.
Why the U.S. may need to raise rates next week (Market Watch) This business cycle analysis says that it is too late in the cycle to leave rates at cycle lows. If the Fed doesn't start raising now they will not be able to raise later without going pro-cyclical during an economic contraction. Econintersect: Pro-cyclical is action that reinforces the current direction of the economy. Counter-cyclical is action which acts against the current direction of the economy, such as interest rate cuts during a recession. For more about this see The Federal Reserve Needs To Raise Rates So That It Can Cut Rates! (Michael Haltman, GEI Opinion).
Migrant crisis: Denmark-Germany rail links suspended (BBC News) Denmark has suspended all rail links with Germany after police stopped hundreds of migrants at the border. Danish police also closed a motorway between the two countries when some asylum seekers began walking north after being forced off a train. They say their destination is Sweden. Econintersect: The flood is just beginning. And most of Europe, which is ageing, cannot recognize the economic opportunity this migration of mostly young refugees represents for the EU.
DeMark Sees Stock Rebound in Shanghai, Hong Kong Before Decline (Bloomberg) Tom DeMark, who predicted in advance last month’s selloff in Chinese stocks, said the Shanghai Composite Index may rise more than 4% to about 3,390 before resuming its decline to the next low around 2,590 - more than 20% below the latest close. He sees the decline in China as "something that may be drawn out".
Economists React: China August Trade Data Add To Slowdown Concerns (The Wall Street Journal) China's trade balance surplus exploded to $60.2 billion in August from $43.03 billion in July. But this is bad news for the Middle Kingdom because it came as exports declined 5.5% from a year ago, while imports collapsed by 13.8% from a year ago. This article includes reactions from several economists.
For China Brokerages, the Market Rescue Hurts More Than It Helps (Bloomberg) China’s campaign to end its $5 trillion equity rout is driving investors away from an unlikely corner of the stock market: the brokerage industry. Instead of benefiting from government efforts to shore up the market, the Hong Kong-listed shares of Citic Securities Co., Haitong Securities Co. and China Galaxy Securities Co. have tumbled twice as fast as benchmark indexes since the beginning of July. Not only are brokerages being compelled to foot a portion of the rescue bill, they’re also getting hit by a plunge in volumes as policy makers restrict speculative trading.
Home Ownership Drops to a New Interim Low (Doug Short, Advisor Perspectives dshort.com) Doug Short is a regular contributor to GEI. As residential real estate prices rise, home ownership continues to decline. The Census Bureau has now released its latest quarterly report with data through Q2. Here is a snapshot of the non seasonally adjusted series with a 4-quarter moving average to highlight the trend. The trend now is showing the steepest sustained decline in at least 50 years. The latest rate of 63.4% has dropped below the interim low in 1985 and is the lowest since the first quarter of 1967.
Rising Rents Outpace Wages in Wide Swaths of the U.S. (The Wall Street Journal) The cost of renting a home is rising faster than wages across wide swaths of the country, a problem that has become especially acute in the past year, putting a big squeeze on many household budgets. The situation is particularly noticeable in long-pricey areas across the West and in big cities like New York, where the average household pays more than 40% of its gross income for rent. But rising prices also have spilled over into cities like Denver, Atlanta and Nashville.
Other Economics and Business Items of Note and Miscellanea
Here’s Why Home Prices Are Climbing So Quickly (The Fiscal Times) Want to buy a home but finding slim pickings? Blame the builders. New home construction has not kept pace with the improving job market in recent years and is part of the reason that housing inventory is so scarce and home prices are growing so quickly, according to a report released today - see next article.
NAR Study: New Home Construction Trailing Job Growth in Majority of Metro Areas (National Association of Realtors) NAR measured the volume of new home construction relative to the number of newly employed workers in 146 metropolitan statistical areas1 (MSAs) throughout the U.S. to determine whether homebuilding has kept up with the steadily improving pace of job growth in the past three years2. The findings reveal that homebuilding activity for all housing types is underperforming in roughly two–thirds of measured metro areas. Lawrence Yun, NAR chief economist, says low inventory has been a prevailing headwind to the housing market in recent years:
"In addition to slow housing turnover and the diminishing supply of distressed properties, lagging new home construction — especially single family — has kept available inventory far below balanced levels. Our research shows that even as the labor market began to strengthen, homebuilding failed to keep up and is now contributing to the stronger price appreciation and eroding affordability currently seen throughout the U.S."
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