03/05/24 08:56 AM EST

The Dichotomy of US Homeownership

Below is a chart and brief excerpt from today’s Market Situation Report written by Tier 1 Alpha. If you’re interested in learning more about the Hedgeye-Tier 1 Alpha partnership, there’s more information here.

In today's bonus section, we delve once more into the nuanced landscape of housing affordability, mirroring the broader economic divide.

On a positive note, Bloomberg reports nearly 40% of Americans now own their homes outright, without any mortgage obligations – a historic peak, with half of these homeowners being retirement age or older. According to Forbes, this statistic places the U.S. 28th worldwide in terms of the share of the population owning their homes free and clear, with the Dave Ramsey award going to Lithuania and the Slovak Republic leading the rankings. In Lithuania, 83% are free and clear. Unlike the U.S., where 30-year mortgages have become the norm, many countries typically offer shorter mortgage terms of 15 to 20 years.

Before you pack your bags to head off to Lithuania or Slovenia, consider WHY free and clear homeownership is high in some countries and low in others ... still sure you want to go? Nobody else is...

Here in the U.S., despite the olds benefitting from both no mortgages and high income on money market accounts (how old is Jay Powell?), the housing market is not without its challenges. Pending home sales have dropped to levels not seen since 2008, with a 6.9% year-on-year decline reported in January, nearing record lows. Case Shiller notes that the median home price across the top 20 cities climbed by 6.1% in 2023. The median price of a new home peaked at $496,000 in October 2022 and dipped to $413,000 in December 2023 before modestly recovering to $421,000 by February. Compounding the issue of affordability are escalating insurance costs, with Bankrate data showing the average annual premium for insuring a $350,000 home now stands at $2,328, or $194 monthly, marking a 23% increase since 2023. This translates to nearly $3,000 annually for homes at the median value, posing a significant burden for the average homeowner.

The potential remedies for these affordability challenges present their own set of difficulties. Proactively lowering interest rates could reignite inflation and set off another housing bubble as affordability rapidly returns. Reluctantly lowering interest rates likely signals a recession, with higher unemployment rates, reduced demand, and an oversupply of housing stemming from developer investments during periods of heightened demand. There are no easy solutions. Well done, Jay.

Learn more about the Market Situation Report written by Tier 1 Alpha.