Today’s inflation and housing data wasn’t encouraging, unless you are someone’s landlord. Housing prices rose faster than wages in the last year. Worse, homebuilders are turning pessimistic.
As the TV Realtor commercials always say, “every market is different.“ Your experience may vary from the national averages — either better or worse — but inflation is a threat no matter where you live.
The latest numbers raise the odds that the Federal Reserve will either tighten policy fairly soon, or wait too long and let inflation get out of control. Neither scenario is good news.
The U.S. Consumer Price Index covering March came out early this morning. Economists had expected a 0.1% increase over February. The report showed 0.2% instead.
Is 0.1% enough to matter? Maybe, if your cost of living is already higher than your income. The annual trends are more problematic. Over the last 12 months, CPI rose 1.5% — more than the 1.1% annual rate we saw this time last month.
“Core“ CPI, which excludes food and energy prices, is now running at a 1.7% annual rate.
Housing costs are driving the CPI increase. Housing expenses account for a big part of the CPI — and they rose 2.8% in the last year.
Rising prices aren’t so bad if wages are rising, too. They are not. Today’s data showed average hourly wages actually dropped 0.3% last month. In the last 12 months, average hourly wages rose only 0.5%.
This is not a pleasant combination. When the cost of living goes up 1.5% and wages rise only 0.5%, people start to fall behind. The effects are small, but they add up.
I’ve written before about the way big investors are snapping up rental properties. This is probably one reason behind the higher housing costs. Moreover, it is affecting more people as Americans choose to rent rather than own their homes.
Today’s New York Times has a good article on this topic. See In Many Cities, Rent is Rising Out of Reach of the Middle Class.
If you do own your home, its value is probably increasing. This ought to entice homebuilders to construct new homes, yet today the National Association of Home Builders/Wells Fargo sentiment index came out weaker than expected.
Homebuilders reported lower sales, less buyer traffic and tighter credit conditions. NAHB said it is optimistic spring weather will bring buyers back to the market, but builders are in a “holding pattern“ for now.
Regionally, builder confidence fell in the Midwest and Western states, rose in the Northeast and was unchanged in the South.
Add all this together and it’s not a pretty picture.
- Inflation is up because of higher housing costs,
- Wages aren’t keeping pace, and
- Homebuilders still lack confidence.
The economics of home prices are simple. Prices won’t go down unless you get lower demand, additional supply, or some combination of the two.
Yield-hungry housing investors are propping up demand but homebuilders aren’t eager to build new homes — especially non-luxury homes. That means housing expenses will hold steady or go higher for average families at the same time their wages are stagnating.
Economists in media reports today focused on the possibility the Federal Reserve won’t tighten in time to head off even higher inflation. That’s possible, but I wonder if the greater risk is “stagflation,“ with living costs rising faster than household income.
Is stagflation coming? Is it already here? Is rent going up in your part of the country? Click here to send me a comment.
My “clean coal“ comments drew some skeptical feedback last night.
Reader Jo M. says: “Clean Coal is worse than a bad joke. What the proponents sweep under the carpet is all the hazardous waste. The only way to neutralize that poisonous stuff is to incinerate it. I do not mean plain burning; I mean incinerating at more than 1,000 degrees Celsius. The molecules and even certain atoms have to be broken up. That is elaborate and expensive and the way I know U.S. companies they would never do the job right.
“It is not just the hazardous waste from burning. The way coal is mined in the U.S. is destructive and pollutes whole states. I am sure you know about the dirt pits that leak into creeks and the aquifer.“
Reader A.C. says: “Clean Coal? Carbon dioxide to be stored underground for a thousand years? Wishful dreaming … This sounds amusing at best … An Alice In Wonderland experience … Something will go wrong much like the Death Star in Star Wars … There will be leaks in the process … But kicking the can really far down the road will result in short-term financial gains. “
Brad: Thank you for the comments. I’m not an expert on this technology and I don’t know if it will work.
As I understand it, the technology turns CO2 into liquid and stores it in underground cavities. Obviously, the idea won’t work if the material just resurfaces somewhere else, or causes other side effects.
However, the fact that both Chinese and U.S. companies are exploring clean coal suggests it has potential, at least.
I’d love to hear from some of our scientific readers about clean coal. You all had some great comments about climate change last week. Is clean coal technology worth pursuing? Click here to send me your thoughts.
The stock market made a big U-turn today before ending to the upside. Here what I see in the news…
- Good earnings news from Coca-Cola (KO) and Johnson & Johnson (JNJ) gave the day a bullish start, despite ominous Ukraine news and questionable data from China overnight.
- Also positive: Tech giants are still snapping up small, privately held innovators. Google (GOOG) bought Titan Aerospace, which makes high-altitude drone aircraft, while Twitter (TWTR) acquired tweet-data aggregator Gnip.
- Has the biotech sell-off run its course? The iShares Nasdaq Biotechnology ETF (IBB) looks like it may have touched bottom today at very close to 20% from its last high.
- Earnings reports after today’s close included Intel (INTC) and Yahoo! (YHOO).
- Yahoo! shares leaped in after-hours trading thanks to its stake in booming Chinese e-commerce portal Alibaba. Intel shares were modestly higher as the chipmaker reported lower profit but higher revenues.
Good luck and happy investing,
Uncommon Wisdom Daily
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