Housing: the Next Casualty

You have to love how Trump does something without thinking, and then turns to deficit spending to repair the damage.

  • That was the story with the tax package. It didn’t stimulate growth, so the administration went into deficit spending on construction projects to get people into jobs. Good old fashioned FDR New Deal spending.
  • That was also the story with farmers and tariffs, and a new bailout program to enable farmers to survive the loss of overseas markets. (The benefactors — Russia and Brazil, of course, locking in contracts and locking out US farmers for the foreseeable future.)

Now we have housing. It turns out that 10% of demand for US housing comes from overseas, and specifically from China, Canada, Mexico, India and United Kingdom. it’s Canadians buying summer homes in Florida. Chinese families buying homes for students studying in college in the US. Roughly 40% of buyers don’t plan to move to the US.

What do Chinese, Canadians and Mexicans have in common? Tariffs!

What do Chines, Canadians, Mexicans and Indians have in common? Anti-foreigner rhetoric and bigotry. (By the way, two DJs in NJ just got put on leave for using disparaging slang to refer the the New Jersey Attorney General, who is a Sikh. Hopefully, they’ll get canned.)

Anyway, it was 10%, last year. It’s 8% now and declining as foreign buyers are pulling back. Foreign buying has dropped by 21% since last year. Home sales to Canadians are off 45%. (The decline in the Canadian dollar is a factor, but the tariff war triggered a large part of that decline. So it’s still Trump’s issue.)

There’s also a decline in students coming to the US to study.

What does this mean for the US? Well, the government was caught by surprise. Again. Housing starts are now 12.3% below the May 2018 forecast, and 4% below June 2017. Construction permits are down 2.2% from May 2018 and 3.0% from last year at this time. All that in the summer, usually the height of the building season.

It means workers getting laid off in coming weeks, and every industry that depends on home sales, from real estate to furniture and appliances, taking a hit. It means declines in housing prices, foreclosures, and mortgage lenders getting back into trouble.

The auto makers are already taking hits, reporting staggeringly bad earnings this week. Ford is in particularly bad shape.

US Baby Boomers are contributing to the problems. Kusisto quotes a Florida broker:

Brent Leathwood, a broker in Florida, said Canadian professional investors are taking a wait-and-see approach and retiring baby boomers are simply scaling back what they purchase.

The political uncertainty “destroys investors’ ability to make long-term investments decisions with confidence and we are seeing this uncertainty rear its ugly head,” Mr. Leathwood said.(3)

The National Association of Realtors was looking to foreign buyers to drive housing demand.(4) Sorry about your luck. Amazing how the outlook can change so much in six weeks.

The US budget deficit is already up 84% this year over last, and that was before the farm bailout. What’s Trump going to spend now to try to fix this? And where is that money going to come from?

 


Sources:

  1. Census Bureau, Monthly New Home Construction, June 2018.
  2. Diana Olick, “International Buyers Are Dropping Out of the US Housing market,” https://www.cnbc.com/2018/07/26/international-buyers-are-dropping-out-of-us-housing-market.html
  3. https://www.wsj.com/articles/record-drop-in-foreigners-buying-u-s-homes-1532632676
  4. https://www.nar.realtor/newsroom/foreign-buyers-and-immigration-expected-to-drive-future-demand-for-us-housing

 

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