Fri 16 Jun 2017


 NBR  Nightly Business Report.
 BTV  Bloomberg Technology: Market Report (Emily Chang).
 BTV  Bloomberg TV: Discusses Amazon’s Acquisition of Whole Foods Group.
 BTV  Bloomberg TV: Joint Center For Housing Studies Report: “State of the Nation’s Housing”.

In Portfolioticker today

Today at the stock market

bull/bearU.S. stocks eked out a gain, while the USD weakened with Treasury yields after poor housing data and a slump in consumer sentiment added to signs the American economy’s growth rate may be slower than forecast.

The benchmark for American equity pushed into the green in the final minute of trading during an event known as quadruple witching, when futures and options contracts expire. Tech shares slipped, pointing the Nasdaq 100 Index to a second straight weekly decline.

  • The S&P 500 rose less than one point to 2,433.14 as of 4 p.m. in New York, leaving it higher by 0.1% for the week. Amazon climbed 2.5% while Whole Foods spiked 29% to the highest since Apr 2015. Food retailers in the S&P 500 lost 5.1%.
  • The Nasdaq 100 lost 0.3%, giving it a 1.1% slide in the week. It’s at the lowest since 19 May 2017.
  • The Stoxx Europe 600 Index rose 0.7%, paring its weekly decline to 0.5%.
  • The MSCI Emerging Market Index fell 0.1% to cap a 1.4% decline in the week.

Equities largely weathered a week that saw the Federal Reserve hike rates and renewed tumult in Washington that continues to delay the Trump administration’s policy agenda. Data Friday ratcheted up concerns that slower U.S. growth may take hold just as the Fed’s third hike since December lands. Oil’s woes add to slowing inflation. In France, newly elected Emmanuel Macron looks set for an historic majority in the National Assembly on Sunday.

“The data this week has not been encouraging. We need to see consumer spending pick up and more confidence across the board before we can get going again. We’re in a weird limbo, coupled with the the summer doldrums. But if we had great numbers coming out, there would be decisions made,” said Mariann Montagne, a portfolio manager at Gradient Investments LLC, which oversees about $1.4 billion.Bloomberg

Market indices

:-) The Dow Jones closed on a record high of 21,384.28

Index Ticker Today Change 31 Dec 16 YTD
S&P 500 SPX (INX) 2,433.15 +0.02% 2,238.83 +8.67%
DJIA INDU 21,384.28 +0.11% 19,762.60 +8.20%
NASDAQ IXIC 6,151.76 -0.23% 5,383.12 +14.27%

The portfolio today

USD and AUD denominated indices over the past 52 weeks (Chart: Bunting)
^ USD and AUD denominated indices over the past 52 weeks Chart: Bunting

Index values

Index Currency Today Change 31 Dec 16 YTD
USD-denominated Index USD 2.596 -0.64% 2.105 +23.36%
Valuation Rate USD/AUD 0.76732 +0.56% 0.72663 +5.59%
AUD-denominated Index AUD 3.385 -1.19% 2.895 +16.92%

Portfolio stock prices

Stock Ticker Today Change 31 Dec 16 YTD
Alphabet A GOOGL $958.62 -0.16% $792.45 +20.96%
Alphabet C GOOG $939.78 -0.27% $771.82 +21.76%
Apple AAPL $142.27 -1.40% $115.82 +22.83%
Amazon AMZN $987.71 +2.44% $749.87 +31.71%
Ebay EBAY $33.96 -0.38% $29.69 +14.38%
Facebook FB $150.64 +0.56% $115.05 +30.93%
PayPal PYPL $51.84 -0.86% $39.47 +31.34%
Twitter TWTR $16.67 -0.95% $16.30 +2.26%
Visa V $94.17 +0.00% $78.02 +20.69%
VMware VMW $88.10 +0.42% $78.73 +11.90%

FX: USD/AUD

USD

DXY movements
^ Bloomberg Dollar Spot Index (DXY) movements today (mouseover for 12 month view) Chart: Bloomberg

The Bloomberg Dollar Spot Index (DXY) fell 0.3% as the USD underperformed all Group of 10 peers. It slid 0.3% on the week.
Japan’s JPY rose 0.1% to 110.865 per USD, after dropping 1.2% in the previous session, the most since Jan 2017.
The EUR rose 0.5% to USD1.1199.
Bloomberg

AUD

AUD movements
^ AUD movements against the USD today (mouseover for 12 month view) Chart: xe.com

Oil and Gas Futures

Futures prices

West Texas crude futures rose 0.6% to settle at $44.74/barrel. Oil fell more than 2% for the week to cap its longest run of weekly losses since 2015. OPEC member Libya restored production and the surplus in the U.S. shows little sign of abating.Bloomberg

Prices are as at 15:49 ET

  • NYMEX West Texas Intermediate (WTI): $44.71/barrel +0.56% Chart
  • ICE (London) Brent North Sea Crude: $47.35/barrel +0.92% Chart
  • NYMEX Natural gas futures: $3.03=/MMBTU -0.92% Chart

Amazon Acquires Whole Foods market

Amazon (NASDAQ:AMZN) and Whole Foods Market, Inc. (NASDAQ:WFM) today announced that they have entered into a definitive merger agreement under which Amazon will acquire Whole Foods Market for $42 per share in an all-cash transaction valued at approximately $13.7 billion, including Whole Foods Market’s net debt.

“Millions of people love Whole Foods Market because they offer the best natural and organic foods, and they make it fun to eat healthy,” said Jeff Bezos, Amazon founder and CEO. “Whole Foods Market has been satisfying, delighting and nourishing customers for nearly four decades – they’re doing an amazing job and we want that to continue.”

“This partnership presents an opportunity to maximize value for Whole Foods Market’s shareholders, while at the same time extending our mission and bringing the highest quality, experience, convenience and innovation to our customers,” said John Mackey, Whole Foods Market co-founder and CEO.

Whole Foods Market will continue to operate stores under the Whole Foods Market brand and source from trusted vendors and partners around the world. John Mackey will remain as CEO of Whole Foods Market and Whole Foods Market’s headquarters will stay in Austin, Texas.

Completion of the transaction is subject to approval by Whole Foods Market’s shareholders, regulatory approvals and other customary closing conditions. The parties expect to close the transaction during the second half of 2017.

About Whole Foods Market

Founded in 1978 in Austin, Texas, Whole Foods Market is the leading natural and organic foods supermarket, the first national “Certified Organic” grocer, and uniquely positioned as America’s Healthiest Grocery Store™. In fiscal year 2016, the Company had sales of approximately $16 billion and has more than 460 stores in the United States, Canada, and the United Kingdom. Whole Foods Market employs approximately 87,000 team members and has been ranked for 20 consecutive years as one of the “100 Best Companies to Work For” in America by Fortune magazine.

Amazon, “Amazon to Acquire Whole Foods Market” 20170616 More

flag_europe EU: Inflation (HICP). May 2017

Press Release Extract [ser_21]

Euro area annual inflation was 1.4% in May 2017, down from 1.9% in April. In May 2016 the rate was -0.1%. European Union annual inflation was 1.6% in May 2017, down from 2.0% in April. A year earlier the rate was -0.1%. These figures come from Eurostat, the statistical office of the European Union.

eu_cpi_20170616

In May 2017, the lowest annual rates were registered in Ireland (0.0%), Romania (0.5%), Denmark and the Netherlands (both 0.7%). The highest annual rates were recorded in Estonia (3.5%), Lithuania (3.2%) and the United Kingdom (2.9%). Compared with April 2017, annual inflation fell in twenty-four Member States, remained stable in one and rose in three.

eu_cpi_states_20170616

The largest upward impacts to euro area annual inflation came from fuels for transport (+0.19 percentage points), accommodation services (+0.07 pp) and heating oil (+0.06 pp), while telecommunications (-0.10 pp), garments (-0.06 pp) and social protection (-0.04 pp) had the biggest downward impacts.

Eurostat, “Inflation (HICP). May 2017“, 16 Jun 2017 More

flag_usa US: Monthly New Residential Construction. May 2017

Press Release Extract [ser_22]

us_newconst_20170616

Building Permits

Privately-owned housing units authorized by building permits in May were at a seasonally adjusted annual rate of 1,168,000. This is 4.9 percent (±0.9 percent) below the revised April rate of 1,228,000 and is 0.8 percent (±1.1 percent) below the May 2016 rate of 1,178,000. Single-family authorizations in May were at a rate of 779,000; this is 1.9 percent (±1.0 percent) below the revised April figure of 794,000. Authorizations of units in buildings with five units or more were at a rate of 358,000 in May.

Housing Starts

Privately-owned housing starts in May were at a seasonally adjusted annual rate of 1,092,000. This is 5.5 percent (±11.9 percent) below the revised April estimate of 1,156,000 and is 2.4 percent (±11.4 percent) below the May 2016 rate of 1,119,000. Single-family housing starts in May were at a rate of 794,000; this is 3.9 percent (±10.4 percent) below the revised April figure of 826,000. The May rate for units in buildings with five units or more was 284,000.

Housing Completions

Privately-owned housing completions in May were at a seasonally adjusted annual rate of 1,164,000. This is 5.6 percent (±9.2 percent) above the revised April estimate of 1,102,000 and is 14.6 percent (±10.9 percent) above the May 2016 rate of 1,016,000. Single-family housing completions in May were at a rate of 817,000; this is 4.9 percent (±11.6 percent) above the revised April rate of 779,000. The May rate for units in buildings with five units or more was 335,000.

U.S. Census Bureau and the U.S. Department of Housing and Urban Development, “Monthly New Residential Construction. May 2017“, 16 Jun 2017 (08:30) More

flag_usa US: Consumer Confidence Index (Preliminary). Jun 2017

Press Release Extract [ser_10]
Index Jun 17 May 17 Jun 16 M-M% Y-Y%
Index of Consumer Sentiment 94.5 97.1 93.5 -2.7% +1.1%
Current Economic Conditions 109.6 111.7 110.8 -1.9% -1.1%
Index of Consumer Expectations 84.7 87.7 82.4 -3.4% +2.8%

The modest early June drop of 2.6 points in the Sentiment Index masks a much larger decline since June 8th. Prior to that date the Sentiment Index had averaged 97.7, but since June 8th, the Index fell to 86.7, a decline of 11.0 points. While this break corresponds with James Comey’s testimony, only a few consumers spontaneously referred to him or his testimony when asked to explain their views. Importantly, the decline was observed across all political parties, but the loss in confidence among self-identified Republicans since June 8th was larger than among Democrats (9.2 vs. 6.8 Index-points), with Independents showing the greatest falloff (11.5 Index-points). The size of the partisan difference between Democrats and Republicans in the Expectations Index, however, was largely unchanged (55.6 Index-points prior to June 8th, and 51.2 after). The recent erosion of confidence was due to more negative perceptions of the proposed economic policies among Democrats and the reduced likelihood of passage of these policies among Republicans. Fortunately, a strong job market, improved household income and wealth have provided a financial buffer against rising uncertainties. Nonetheless, consumers have become less optimistic about the future course of the domestic economy. Even with the expected bounce back in spending in the current quarter, personal consumption is expected to advance by 2.3% for all of 2017.

University of Michigan, “Consumer Confidence Index (Prelim). Jun 2017“, 16 Jun 2017 (10:00) More

flag_usa US: State of the Nation’s Housing 2017

Press Release Extract

A decade after the onset of the Great Recession, the national housing market has, by many measures, returned to normal, according to the latest State of the Nation’s Housing report, being released today by the Joint Center for Housing Studies of Harvard University. Housing demand, home prices, and construction volumes are all on the rise, and the number of distressed homeowners has fallen sharply. However, along with strengthening demand, extremely tight supplies of both for-sale and for-rent homes are pushing up housing costs and adding to ongoing concerns about affordability. At last count in 2015, the report notes, nearly 19 million US households paid more than half of their incomes for housing.

National home prices hit an important milestone in 2016, finally surpassing the pre-recession peak. Drawing on newly available metro-level data, the Harvard researchers found that nominal prices were up last year in 97 of the nation’s 100 largest metropolitan areas. At the same time, though, the longer-term gains in real prices varied widely across the country, with some markets experiencing home price appreciation of more than 50 percent since 2000, while others posted only modest gains or even declines. These differences have added to the already substantial gap between home prices in the nation’s most and least expensive housing markets.

“While the recovery in home prices reflects a welcome pickup in demand, it is also being driven by very tight supply,” says Chris Herbert, the Center’s managing director. Even after seven straight years of construction growth, the US added less new housing over the last decade than in any other ten-year period going back to at least the 1970s. The rebound in single-family construction has been particularly weak. According to Herbert, “Any excess housing that may have been built during the boom years has been absorbed, and a stronger supply response is going to be needed to keep pace with demand—particularly for moderately priced homes.”

Meanwhile, the national homeownership rate appears to be leveling off. Last year’s growth in homeowners was the largest increase since 2006, and early indications are that homebuying activity continued to gain traction in 2017. “Although the homeownership rate did edge down again in 2016, the decline was the smallest in years. We may be finding the bottom,” says Daniel McCue, a senior research associate at the Center.

Affordability is, of course, key. The report finds that, on average, 45 percent of renters in the nation’s metro areas could afford the monthly payments on a median-priced home in their market area. But in several high-cost metros of the Pacific Coast, Florida, and the Northeast, that share is under 25 percent. Among other factors, the future of US homeownership depends on broadening the access to mortgage financing, which remains restricted primarily to those with pristine credit.

Despite a strong rebound in multifamily construction in recent years, the rental vacancy rate hit a 30-year low in 2016. As a result, rent increases continued to outpace inflation in most markets last year. Although rent growth did slow in a few large metros—notably San Francisco and New York—there is little evidence that additions to rental supply are outstripping demand. In contrast, with most new construction at the high end and ongoing losses at the low end, there is a growing mismatch between the rental stock and growing demand from low- and moderate-income households.

Income growth did, however, pick up last year, reducing the number of US households paying more than 30 percent of income for housing—the standard measure of affordability—for the fifth straight year. But coming on the heels of substantial increases during the housing boom and bust, the number of households with housing cost burdens remains much higher today than at the start of last decade. Moreover, almost all of the improvement has been on the owner side. “The problem is most acute for renters. More than 11 million renter households paid more than half their incomes for housing in 2015, leaving little room to pay for life’s other necessities,” says Herbert.

Looking at the decade ahead, the report notes that as the members of the millennial generation move into their late 20s and early 30s, the demand for both rental housing and entry-level homeownership is set to soar. The most racially and ethnically diverse generation in the nation’s history, these young households will propel demand for a broad range of housing in cities, suburbs, and beyond. The baby-boom generation will also continue to play a strong role in housing markets, driving up investment in both existing and new homes to meet their changing needs as they age. “Meeting this growing and diverse demand will require concerted efforts by the public, private, and nonprofit sectors to expand the range of housing options available,” says McCue.

Joint Center for Housing Studies of Harvard University, “Harvard Research Center Releases The State of the Nation’s Housing 2017: Growing Demand and Tight Supply are Lifting Home Prices and Rents, Fueling Concerns about Housing Affordability” 16 Jun 2017 Press Release

Executive Summary Extract

US house prices rose 5.6 percent in 2016, finally surpassing the high reached nearly a decade earlier. Achieving this milestone reduced the number of homeowners underwater on their mortgages to 3.2 million by year’s end, a remarkable drop from the 12.1 million peak in 2011. In inflation-adjusted terms, however, national home prices remained nearly 15 percent below their previous high. As a result, the typical homeowner has yet to fully regain the housing wealth lost during the downturn.

The increase in nominal home prices was widespread, with home values gaining ground in 97 of the nation’s 100 largest metros. But the extent of the recoveries differs significantly. Home prices in only 41 of these metros now exceed previous highs, while prices in 32 metros are still down 15 percent or more. Markets where prices are well below peak include not only metros at the epicenter of the housing boom and bust, such as Las Vegas and Tampa, but also Midwestern markets where the cycle in home prices was comparatively mild, such as Chicago and Detroit.

The rebound in home prices also differs sharply across neighborhoods by income. Based on Zillow data for over 9,000 ZIP codes, home prices in low-income areas (with median incomes under 80 percent of statewide median) were still 13.7 percent below their pre-recession peaks on average in 2016. By comparison, prices were 6.5 percent below peak in moderate-income neighborhoods and only 3.3 percent below peak in high-income neighborhoods (with median incomes over 120 percent of statewide median). This means that larger shares of homeowners in low-income communities than in higher-income neighborhoods remain underwater on their mortgages, with no opportunity to refinance or sell without bringing money to the closing table.

The cumulative impact of these differences on real home price appreciation has a strong regional pattern. Markets primarily along the East and West Coasts have seen inflation-adjusted home values increase by more than 40 percent since 2000, while metros in large swaths of the Midwest and South have experienced declines. Although the substantial increase in high-appreciation markets is a boon for current homeowners, it has also pushed homeownership out of reach for many. Indeed, home values now average $575,000 in the 10 metros with the highest appreciation rates—more than four times the $135,000 average in the 10 markets with the lowest appreciation rates.

MODERATE GAINS IN CONSTRUCTION BUT TIGHTENING SUPPLY

New construction added 1.17 million units to the national stock in 2016, a 5.6 percent increase from 2015. While marking the seventh year of gains, last year’s growth rate was the lowest since 2011 thanks largely to the flattening of multifamily starts from 397,000 units to 393,000. Meanwhile, construction of single-family homes picked up by 9.4 percent in 2016, to 781,600 units, outpacing growth in multifamily construction for the first time since the recession.

But even after seven consecutive years of growth, new residential construction in 2016 was well below the 1.4–1.5 million unit annual rates averaged in the 1980s and 1990s. In fact, coming on the heels of the most prolonged and pronounced downturn since the Great Depression, housing completions in the past 10 years totaled just 9.0 million units—more than 4.0 million units less than in the next-worst 10-year period going back to the late 1970s. Together with steady increases in demand, the low rate of new construction has kept the overall market tight, leaving the gross vacancy rate at its lowest point since 2000.

The lack of inventory for sale is evident in both the new and existing segments of the market. In 2016, the typical new home for sale was on the market for 3.3 months, well below the 5.1 months averaged since recordkeeping began in 1988. Meanwhile, only 1.65 million existing homes were for sale in 2016, the lowest count in 16 years. And with sales volumes picking up, the inventory represented just 3.6 months of supply, an 11-year low.

Conditions are particularly tight at the lower end of the market, likely reflecting both the slower price recovery in this segment and the fact that fewer entry-level homes are being built. Between 2004 and 2015, completions of smaller single-family homes (under 1,800 square feet) fell from nearly 500,000 units to only 136,000. Similarly, the number of townhouses started in 2016 (98,000) was less than half the number started in 2005.

Meanwhile, rental markets are extremely tight despite the relatively strong pickup in multifamily construction. According to the Housing Vacancy Survey, the rental vacancy rate fell for the seventh straight year in 2016, dipping to 6.9 percent—its lowest level in more than three decades. MPF Research reports that the vacancy rate for professionally managed apartments was also just 4.4 percent. While some rental markets showed signs of softening in early 2017—most notably in San Francisco and New York—there is generally little indication that increases in supply are outstripping demand.

Indeed, rent gains across the country continue to far outpace inflation. The Consumer Price Index for rent on primary residences was up 3.8 percent last year, while MPF Research estimates that rents for professionally managed apartments rose by a similar amount. With most new supply coming at the upper end of the market and strong demand pushing up rents across the board, the number of modestly priced units available for under $800 declined by 261,000 between 2005 and 2015, while the number renting for $2,000 or more jumped by 1.5 million.

A variety of factors may be holding back a more robust supply response. Labor shortages are a key constraint, reflecting both the substantial drop in the construction workforce following the housing bust and the lower number of young workers entering the industry. In addition, regulatory and stricter financing requirements have limited the supply of land available for both single- and multifamily housing construction. In combination, these forces raise development costs and make it less feasible to build smaller homes for first-time buyers and rental units affordable to low- and moderate-income households.

PICKUP IN HOUSEHOLD GROWTH

The sluggish rebound in construction also reflects the striking slowdown in household growth after the housing bust. Depending on the government survey, household formations averaged just 540,000 to 720,000 annually in 2007–2012 before reviving to 960,000 to 1.2 million in 2013–2015.

Much of the falloff in household growth can be explained by low household formation rates among the millennial generation (born between 1985 and 2004). Indeed, the share of adults aged 18–34 still living with parents or grandparents was at an all-time high of 35.6 percent in 2015. But through the simple fact of aging, the oldest members of this generation have now reached their early 30s, when most adults live independently. As a result, members of the millennial generation formed 7.6 million new households between 2010 and 2015.

While sharply lower immigration also contributed to weak household growth after the bust, net inflows picked up from 854,000 in 2011 to just under 1.0 million in 2016. Pew Research Center estimates also indicate little change in the undocumented population since 2007, implying that virtually all of these new arrivals are documented immigrants.

The Joint Center for Housing Studies has revised its household growth projections to reflect these recent trends as well as the Census Bureau’s 2014 population projections, which assume that growth in the foreign-born population increases to 1.27 million per year by 2020. Growth in US households is now projected to reach 13.6 million in 2015–2025, roughly in line with the increase in the 1990s. Minorities will drive almost three-quarters of these gains, with Hispanics alone accounting for a third.

Over the decade, the aging of the millennial generation will boost the number of households in their 30s by 2.6 million.

At the same time, the aging of the baby boomers will lift the number of households age 65 and over by some 11.3 million. By 2035, one out of every three households will be headed by someone in this older age group. In the following decade, however, household growth is projected to slow to 11.5 million as mortality rates rise among the baby-boom generation. With the white population increasing only slowly, minorities will account for over 90 percent of household growth in 2025–2035.

Whether these projections come to pass will depend in no small part on the health of the US economy. But perhaps the key unknown is the pace of immigration. If successful, proposed policies to curtail both undocumented and documented immigration would be a significant drag on household growth in the coming years.

HOMEOWNERSHIP DECLINES MODERATING, WHILE RENTAL DEMAND STILL STRONG

After 12 years of decline, there are signs that the national home-ownership rate may be nearing bottom. As of the first quarter of 2017, the homeownership rate stood at 63.6 percent—little changed from the first quarter two years earlier. In addition, the number of homeowner households grew by 280,000 in 2016, the strongest showing since 2006. Early indications in 2017 suggest that the upturn is continuing. Still, growth in renters continued to outpace that in owners, with their numbers up by 600,000 last year.

While there is no ideal homeownership rate, its long-term decline is a policy concern in part because of its disproportionate impact on black households. Over the past 12 years, the black homeownership rate fell sharply to just 42.2 percent, slightly below the 1994 level. With white rates increasing to 71.9 percent over this period, the black-white homeownership gap widened by 2.3 percentage points to 29.7 percentage points in 2016—the largest disparity since World War II.

At the same time, the homeownership rates were up nearly 5 percentage points among Asians (to 55.5 percent) and Hispanics (to 46.0 percent), narrowing the gap with white homeownership rates by 2.8 percentage points. Together with growth in their populations, these gains lifted the combined Asian and Hispanic share of homebuying activity from one out of seven sales in 2001 to nearly one out of five in 2015.

Now that foreclosures are ebbing and incomes are rebounding, the national homeownership rate may level off. But the ongoing tightness of mortgage credit and the limited supply of lower-cost housing are still serious constraints for potential homebuyers. The current debate about the federal role in backstopping the mortgage market thus has important implications for the cost and availability of financing. The role and capabilities of the Federal Housing Administration (FHA) must be part of the policy discussion, given the outsized role it plays in supporting home purchase loans for minority and lowerincome households.

The future course of homeownership will also be shaped by how affordable local home prices are for typical renters. On average, 45 percent of renters across the nation’s metropolitan areas can afford the payments on a median-priced home in their market area, but the shares range from less than one in ten in the high-cost markets concentrated on the Pacific Coast as well as in Florida and the Northeast, to two-thirds or more in low-cost metros in the Midwest and rural South. In areas where homebuying is well out of reach for a large majority of renters, there is much less potential for increases in homeownership.

Joint Center projections suggest that demand for owner-occupied housing could rebound sharply even as demand for rentals remains strong. Assuming that the homeownership rate stabilizes near its current level, the number of homeowner households could grow by 8.9 million in 2015–2025 while the number of renter households could increase by about 4.7 million. And even if the downtrend in homeownership continues for another five years, owner household growth would still total 4.9 million by 2025. In that case, renter household growth would hold near its recent annual pace, lifting the total increase in 2015–2025 to 8.7 million.

AFFORDABILITY PRESSURES REMAIN WIDESPREAD

Based on the 30-percent-of-income affordability standard, the number of cost-burdened households fell from 39.8 million in 2014 to 38.9 million in 2015. As a result, the share of households with cost burdens fell 1.0 percentage point, to 32.9 percent. This was the fifth straight year of declines, led by a considerable drop in the owner share from 30.4 percent in 2010 to 23.9 percent in 2015. The renter share, however, only edged down from 50.2 percent to 48.3 percent over this period.

With such large shares of households exceeding the traditional affordability standard, policymakers have increasingly focused their attention on the severely burdened (paying more than 50 percent of their incomes for housing). Although the total number of households with severe burdens also fell somewhat from 19.3 million in 2014 to 18.8 million in 2015, the improvement was again on the owner side. Indeed, 11.1 million renter households were severely cost burdened in 2015, a 3.7 million increase from 2001. By comparison, 7.6 million owners were severely burdened in 2015, up 1.1 million from 2001.

The share of renters with severe burdens varies widely across the nation’s 100 largest metros, ranging from a high of 35.4 percent in Miami to a low of 18.4 percent in El Paso. While most common in high-cost markets, renter cost burdens are also widespread in areas with moderate rents but relatively low incomes. Augusta is a case in point, where the severely cost-burdened share of renters was at 30.3 percent in 2015.

Regardless of location, the cost-burdened shares among lowest-income households (earning under $15,000 a year, roughly equivalent to working full-time, year-round at the federal minimum wage) are consistently high. In the nation as a whole, 70.3 percent of lowest-income households face severe housing cost burdens. Indeed, in certain metros such as Cape Coral and Las Vegas, nearly nine out of ten lowest-income renters are severely burdened. But even in the markets with the smallest shares, such as El Paso and Knoxville, six out of ten lowest-income renters face these burdens.

The scale and pervasiveness of severe cost burdens among lowest-income renters underscores the fundamental challenge of providing housing that these households can afford. A recent National Low Income Housing Coalition study found that for every 100 extremely low-income renters (earning 30 percent of area median income) in 2015, only 35 rental units were affordable at the 30-percent standard, in adequate condition, and not occupied by higher income households. In seven metros, fewer than 20 units were affordable and available for every 100 extremely low-income renters.

SEGREGATION BY INCOME ON THE RISE

A growing body of social science research has documented the long-term damage to the health and well-being of individuals living in high-poverty neighborhoods. Recent increases in segregation by income in the United States are therefore highly troubling. Between 2000 and 2015, the share of the poor population living in high-poverty neighborhoods rose from 43 percent to 54 percent. Meanwhile, the number of high-poverty neighborhoods rose from 13,400 to more than 21,300. Although most high-poverty neighborhoods are still concentrated in high-density urban cores, their recent growth has been fastest in low-density areas at the metropolitan fringe and in rural communities.

At the same time, the growing demand for urban living has led to an influx of high-income households into city neighborhoods. While this revival of urban areas creates the opportunity for more economically and racially diverse communities, it also drives up housing costs for low-income and minority residents.

FUTURE OPPORTUNITIES AND CHALLENGES

By many metrics, the housing market has overcome the worst effects of the housing bust. Nominal house prices have regained previous peaks, construction volumes are nearing their long-term averages, and household growth is becoming more balanced between the owner and renter markets. And with inventories of both for-sale and for-rent homes extremely tight, the need for additional housing supply should be an important stimulus for economic growth.

Longer-term demographic trends are also favorable for the housing sector. Even if they remain somewhat less likely to form new households than previous generations, millennials will bolster demand for both rental and owner-occupied housing as they move into their late 20s and early 30s. This generation is the most racially and ethnically diverse in the nation’s history, and already demonstrates a greater interest in urban living than its predecessors. But providing housing for these younger adults—particularly at affordable price points and in the places where they want to live—will be a significant challenge.

For its part, the baby-boom generation will drive up investment in the existing housing stock as they modify their homes to accommodate their changing needs. While most are likely to remain in their current homes, some baby boomers will seek different housing options as they transition into old age. Although many of these households have the financial resources to support a range of housing options, millions of older households will be of modest means. Meeting the growing need for housing that is accessible, affordable and well-integrated into communities will require concerted efforts by the private and public sectors alike.

Given the pivotal role of housing in determining the well-being and financial security of every individual and family, attending to the nation’s critical housing challenges should have primacy in the debates over public spending, tax policy, and regulatory regimes. National housing policy must also recognize the diversity of conditions existing both within and across markets. As such, state and local governments have a central role to play in defining specific community needs, crafting policies, and marshaling resources to support housing solutions. But only the federal government can provide funding at the scale necessary to make meaningful progress toward the nation’s stated goal of a decent home in a suitable living environment for all.

Joint Center for Housing Studies of Harvard University, “The State of the Nation’s Housing – 2017” 16 Jun 2017 (12:00) Report

flag_japan Japan update

Currency: USD/JPY

JPY movements
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N225 movements
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flag_china China update

Currency: USD/CNY

CNY movements
^ CNY movements against the USD over the past month (mouseover for inverse) Chart: xe.com

Stockmarket: CSI300

CSI300 movements
^ Shanghai CSI300 movements over the past week Chart: Google Finance