James Carville was the brilliant campaign strategist for Bill Clinton during his 1992 presidential campaign against a sitting president, George H.W. Bush. Carville used this phrase to his political advantage showing Bush was out of touch with voters who were still feeling the aftermath of a recent recession. The irony was that by 1992 the 1990-1991 recession was already over and the economy was showing positive signs of recovery. Still, many Americans were not convinced. Bush lost the election by 5 million votes. So what does this bit of political history have to do with the current real estate market? Let’s see.
Real estate activity for El Dorado County appears healthy. Last month’s median selling price of $350,000 was up a whopping 31 percent from this time last year and prices have remained pretty consistent over the last three months. Since August, however, the number of home sales has been tapering off. Homes are also taking longer to sell with less multiple offers. Last month 350 sellers lowered their listing prices in order to attract offers.
Another sign that the market is cooling is found in the monthly report from the Mortgage Bankers Association. The report shows mortgage purchase applications for October dropped to their lowest level since December 2012 and refinance applications are dropping further. The slight increase in mortgage rates and tighter credit policies are partially responsible for the decline but the real culprit is the economy.
We have been officially out of the Great Recession for more than four years now but most folks are not feeling all that terrific about the recovery. The Consumer Confidence Index is up from 2008 but the majority of Americans still believe that our economy is heading in the wrong direction. They could be right.
We lost 8 million jobs during the recession. And while we have replaced 7 million of them, the jobs created have been lower-skilled and subsequently less-paying jobs than what we lost. The unemployment rate has dropped to 7.3 percent but our employment participation rate remains at 62 percent. We have fewer folks working today than we did before the recession.
Housing and the stock market have done well. Rising home prices have pushed up net equity by $2 trillion in the past two years and stocks have hit all-time record highs increasing personal net worth. However, fewer Americans are participating in the recent gains. Stock ownership among Americans is at a record low. According to Gallup, only 52 percent of adults say they own any stocks, either individually or through mutual funds. The percentage of homeowners is also falling. The percentage of families who own a home has declined from 69 percent a few years ago to 65 percent today and 55 percent in California. That’s the lowest level in 40 years.
This economic recovery has been pretty selective. While many homeowners, with their 401Ks and good jobs, are feeling better about the economy, many are not. In order for our economy and our housing market to continue to grow, much will depend upon more Americans participating in the future economic expansion. The fear is they won’t.
The most recent Census Bureau’s report shows California with 9 million people living in poverty during 2012. That’s the highest rate in the country. Across the U.S. 46.5 million people are living below the poverty line. We have fewer people employed today than we did in 2007 and more receiving some type of government assistance.
According to the new census data, the number of Americans who receive means-tested government benefits now outnumbers those who are year-round, full-time workers. Among the 108,592,000 people who fit the Census Bureau’s description of a means-tested benefit recipients were: 82,457,000 people in households receiving Medicaid, 49,073,000 beneficiaries of food stamps, 20,223,000 on Supplemental Security Income, 23,228,000 in the Women, Infants and Children program, 13,433,000 in public or subsidized rental housing and 5,854,000 in the Temporary Assistance for Needy Families program. Then we have millions more receiving free or reduced-price lunch or breakfast, state-administered supplemental security income and means-tested veterans’ pensions.
The census data does not include people who received benefits from non-means-tested government programs such as Social Security, Medicare, unemployment or non-means-tested veteran’s compensation.
The complete recovery of the housing market cannot be sustained forever with subsidized interest rates. Eventually the Fed will stop its Quantative Easing policy. In addition to low interest rates, investors and satisfying the pent-up demand has accounted for much of the recovery up to this point.
To further strengthen the housing market we must expand the number of future homeowners and that will only happen if and when we create jobs. Jobs will reduce dependency on government assistance. Jobs will increase federal tax revenue and jobs will drive consumer spending and sustain a stable housing market.
Yes, job creation is taking place but the majority of new jobs are in lower paying retail or food service. Median household income, after adjusting for inflation, has actually declined since 2007 and more households are receiving some type of government assistance. This growing segment of the population is not likely to be future homebuyers.
Increasing private sector employment needs to be a priority at the local, state and federal level in order to increase our homeownership base. If we don’t, we risk becoming a nation of the few privileged homeowners and all the rest. It’s all about jobs!
Ken Calhoon is a real estate broker in El Dorado County. He can be reached at kencalhoon.com.