Some Tricks and Treats

With Halloween tomorrow, I’ve gathered some economic and financial data that I’m going to label as a trick (discouraging) or a treat (encouraging).

Am I trying too hard to fit this information into a Halloween theme? Probably.

But it’s my newsletter, so I can do what I want. Bear with me.

Let’s get some of the discouraging data out of the way first.

Trick:

On average, house prices are up over 44% across the country since the start of the pandemic.

If you’ve been involved with the housing market over the past few years, either through buying or selling a house, this data probably doesn’t come as a shock. Houses are still expensive.

But to put that increase into context, from 2010 to 2019 national housing prices were up 44% in total or 3.7% per year. Since 2020, prices are up 44% in total or nearly 11% per year. Essentially, a decade’s worth of home price gains have been squeezed into this short, 4-year time period.

What’s the cause?

A big reason is simply demographics. There are more than 70 million millennials who are now in or approaching their prime household formation years and there aren’t enough houses for sale. Supply hasn’t kept up with demand.

The following chart shows how many millions of homes have been completed in the U.S. by decade:

Since the 2008 housing crisis, the number of new homes completed has dropped off a cliff.

Sure, this may feel like a treat if you’re an existing homeowner who has watched their net worth skyrocket because their home has dramatically increased in value. But it’s a cruel trick for many young people who are boxed out of the housing market because the cost of home ownership is so expensive right now.

Treat:

The cost of buying a home versus renting is at its most extreme since at least 1996. The average monthly new mortgage payment is 52% higher than the average monthly rent payment.

If you’re feeling left out because you can’t afford to buy a home right now, renting is a great way to lower your monthly expenses as you save up for that purchase. On top of that, renting provides valuable flexibility for those still figuring out where they want to “settle down.”

And no, contrary to a common financial belief, renting does not mean you’re throwing your money away. Are you throwing money away when you go buy food or go out to a restaurant to eat? Of course not. You’re paying for a valuable and necessary service.

And for the record, I’ve “thrown away” far more money on miscellaneous housing costs owning my home than I ever did renting.

Trick:

The U.S. stock market is down around 7% in the last 3 months. This recent dip in the stock market combined with interest rates remaining high and student loan payments coming back have people clamoring that a recession is on the horizon.

Treat:

The U.S. stock market is up around 18% since last October.

Despite the many news stories about a possible recession, the stock market has quietly performed pretty well over the past year.

Reportedly, Americans are following the news less closely than they used to. I think this is a good thing.

Did you know there’s a new article published on CNBC every 10 minutes or so? The amount of “financial news” spewed at us through these sites or through social media is dizzying. And making investment decisions based on media headlines often leads to poor results.

Trick:

Stanford research shows that 8 out of 10 people don't have a single, identifiable passion that organizes their lives.

So “follow your passion” isn’t great life advice that works for the majority of people.

Treat:

“The people who tell you to ‘follow your passion’ are already rich. And typically those people telling you to follow your passion made their riches in iron or smelting. Your job is to find something you’re good at, and after ten thousand hours of practice, get great at it. The emotional and economic rewards that accompany being great at something will make you passionate about whatever ‘it’ is. — Scott Galloway

Treat:

Amidst concerns about inflation, high interest rates, expensive houses, and a myriad of other things, the median net worth for U.S. households has risen 37% from 2019 to 2022. And while net worth grew 37%, total household debt grew less than 4%.

And yes, those numbers are accounting for inflation.

In addition, this growth in net worth is not just happening for the Baby Boomers who own the majority of financial assets in the country. In fact, the age group increase that has seen the biggest increase are those under 35:

This also isn’t due to just housing prices going up. Renters actually experienced an even bigger increase in their real net worth than homeowners. Renters gains were 43% and homeowners 34%.

Overall, most Americans (including young people) are in a much better place financially now than they were a few short years ago.

Treat:

I had to share a picture of my boys in their Halloween costumes this year. They’re Masters caddies.

Thanks for reading!