We're in this Together

Home ownership has long been seen as a critical component to success in America. This has so impacted our psychology that many renters feel inadequate for not taking part in what has been called the ownership society. So it’s fair to ask how far will (or should) you go to be a homeowner. It seems declining affordability is causing some buyers to get creative.

GW Bush wasn’t the only president to aim for growing home ownership, of course. FDR’s New Deal and the post-WWII economic and baby boom helped grow our home ownership rate from 44% in 1940 to about 62% by 1960. Growth continued before peaking at 68% in 2007 and obviously took a hit during the Great Recession. We’ve been in the mid-60% range ever since.

While average on the world stage, our current home ownership rate of about 64% seems poised for more growth. There’s so much demand chasing not enough supply. Even amid what many term an affordability crisis, the drive to own a home is so strong that some are looking for alternatives to traditional home ownership.

For example, there’s a growing number of people buying homes in partnership with each other, something known as co-buying. We’ve all heard of this in terms of buying a vacation property with a friend or even with strangers as part of an investment scheme, but more buyers are using co-buying to buy a primary residence. They live together, share expenses, and potential home equity growth as well. They also share risk, which can work out badly if not planned for and if, unfortunately, they’re unlucky.

Honestly, I didn’t know co-buying was that big of a thing, but I’ve been reading about it and wanted to share some information. Ultimately, it’s an interesting development in the ongoing saga of rising real estate prices and what’s sustainable longer-term.

First, let’s review some charts and commentary from my research partners at Bespoke Investment Group. They conduct a monthly survey of 1,500 consumers based on Census data and often come up with interesting analysis. This time it’s about the rise of Millennials and Gen Z as homeowners. This data confirms the anecdotes about younger folks being eager to buy and also excited to fix up their space.

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Healthy Consumers

Last week turned out well for the stock market considering how the week began. Investors digested some bad news for most of Monday, realized some of it wasn’t so bad on Tuesday, and then bought back what they sold for much of the rest of the week. This was a good example of how odd markets can sometimes behave, even amid an otherwise healthy economy.

What might also have helped sooth investor worries was updated data from the government on the financial health of the U.S. consumer. We make up 69% of GDP, a historic high point as of the second quarter, so the overall financial stability of households is incredibly important for the economy. The data is encouraging so I want to share some of it with you.

While the data comes from the Fed the charts and commentary below come from my research partners at Bespoke Investment Group. What’s interesting this time around versus the Great Recession, for example, is how well the average consumer is fairing right now. They have cash in the bank, low consumer debt, and haven’t gone crazy using their homes as ATMs. All opposite from where we were during the mid-2000’s.

One takeaway for investors is that a healthy consumer equals a healthy economy, at least for the 69% of businesses catering to them. And given that our government is potentially adding trillions in more spending to the system, it’s hard to imagine the economy and the markets turning really nasty anytime soon given this backdrop.

That doesn’t mean markets won’t be volatile along the way. They’re likely to be and are again today. This is especially true during this time when the unthinkable seems to happen with regularity. There are simply too many balls in the air, so to speak, for investors to juggle that they’ll be prone to react in unexpected ways. You don't have to sell and bury everything in a jar, just be prepared. 

Continue reading below for the charts and brief commentary from Bespoke.

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Monitoring the Trends

The Bureau of Labor Statistics has to be an interesting place to work. The almost 140-year-old government agency is responsible for gathering and disseminating data on jobs, wages and changes in the labor force, economic growth, and also for generating the various inflation numbers that drive so much of our financial life. Sounds like tons of fun, right?

The BLS also offers forecasts, and they just came out with a host of projections for this decade. While this isn’t meant to be a crystal ball, these projections shine a light on important trends in our economy. These trends impact your life and the lives of those around you in a variety of ways, so it’s important to pay attention to them.

You could probably guess many of the trends because most have been in place for some time. But as with so much else lately they’ve been accelerated since the pandemic started, in some cases dramatically. This research is done for every decade, so accounting for a tumultuous first year in 2020 must have been a challenge for the folks at the BLS.

I’m going to lay out a very brief summary of their projections below but am also providing links to a better summary from Bloomberg and then to the news release from the BLS. That way you can decide how deep you want to go if you’d like more information.

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Quarterly Update

US and global stock markets performed well for much of the summer before faltering just prior to the end of the third quarter (Q3). Investor confidence took a step back as prices fell and volatility rose. The downward slide was due to a host of issues that festered throughout Q3 but remained unresolved as the calendar shifted quarters.

Here’s a roundup of how major markets performed during the third quarter and year-to-date, respectively:

  • US Large Cap Stocks: up 0.6%, up 15.9%
  • US Small Cap Stocks: down 4.3%, up 12.3%
  • US Core Bonds: basically flat, down 1.7%
  • Developed Foreign Markets: down 1.1%, up 8.4%
  • Emerging Markets: down 8.7%, down 2.1%

September has historically been one of the worst months for stocks. According to Bespoke Investment Group, the past 20 years has only seen positive returns 38% of the time for the S&P 500 during September. Add in a long period of low volatility mixed with a waning-but-still-concerning Delta variant, a potential government shutdown and debt default, trillions of potential new spending from Congress, and then a looming “Lehman Moment” coming out of China late in the month, and it’s no surprise we saw a rocky September.

Across sectors, the Financials and Utilities sectors fared best for Q3 as a whole, while Industrials and Materials performed the worst. But during September Energy was up almost 9% while the other major sectors finished in the red, with most down 5% to 7%. Developed foreign markets followed suit, down about a percent for the quarter and about 3% during September. The main emerging markets index was down almost 9% for Q3 and about 4% for September on concerns emanating primarily from China, Hong Kong, and Brazil.

While the surge in volatility was due to many factors coming together seemingly all at once, one of them, inflation, has been of growing concern at least since the pandemic lows in 2020. Since then the Federal Reserve has pumped trillions of dollars into the financial system to help support the economy and markets. Congress added its own cash as well. This spending was meant to be inflationary but controllable, or at least short-lived. We seemed to reach a point of consternation when inflation numbers through August showed prices rising by 5.3%, a number not seen for at least a decade. In response, the Fed continued to profess being relatively unconcerned about rising prices and reiterated it can move to control inflation if needed.

Along those lines, bonds were volatile during Q3, although the changes were small when compared to the stock market. The yield on the 10yr Treasury, a major benchmark, began the quarter at about 1.4%, then sank to almost 1% before reaching about 1.5% at quarter’s end. These moves kept major bond indexes about flat for the quarter. Longer-term bonds were negative.

Another factor causing market volatility was growing tension around the debt ceiling, an arbitrary limit Congress sets for our nation’s borrowing that has been around for over 100 years. Since then it’s never been reduced, only extended many times, and sometimes temporarily suspended as it was last year. This year Congress has to raise it or risk running out of room to borrow to pay government debts. The latter would mean “default” and is very similar to a household running out of available credit as the bills keep coming due. But since the federal government can always create more money where households can’t, debt ceiling debates are essentially an opportunity for political theater that moves markets and scares a lot of people unnecessarily. The rhetoric picked up steam late in September, but the issue was left unresolved as the quarter ended.

Investors also focused on spending plans in Congress. There was short-lived concern that the government would be forced to shut down at the end of September, but that risk was pushed off until December. Congress also left in the air multi-trillion-dollar spending packages that would alter the tax code, retirement savings, and personal banking, just to name a few areas that would be of direct concern to investors. While more spending would certainly benefit the economy in the short- and medium-term, as the quarter waned investors grew uneasy about what the final bills might contain and how these provisions would play out in the real economy.

But people in the real economy seem to be doing pretty well, at least on average. According to government statistics consumers have more cash in the bank, more home equity, and less consumer debt than before the Great Recession. Rising stock prices and a hot housing market and have helped folks who hold these assets feel the so-called wealth effect which increases confidence. And government subsidies have helped those who don’t (as well as many who do) shore up their personal balance sheets. In short, there’s still a lot of spending money out there and this should help keep the economy growing.

This continued growth is expected to be a tailwind for the stock market as we enter the fourth quarter. And just as September is often a bad month for stocks, the winter months are usually good. I wouldn’t expect a cakewalk, however. Volatility is likely to be with us for awhile as we work through the variety of issues alluded to above.

Have questions? Ask me. I can help.

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Mood Swings

Yesterday was nasty for the stock market and this followed a couple weeks of downward slide. That’s a rather abrupt shift from a long run of low volatility and solid returns since the pandemic lows. So what’s going on with the markets right now? Put simply, investors are in a bad mood after digesting too much bad news.

Even with all the technology, markets are still fundamentally human and are absolutely susceptible to mood swings. Some even suggest that the stock market has manic depressive tendencies. I’m inclined to agree. Start piling on bad news, even if it’s not all directly tied to the markets and economy, and the mood can go from ebullient to gloomy almost overnight. This might seem odd given what the market has shrugged off in the last 18 months, but nobody said it’s predictable.

Analyst outlook is solid, but right here right now the mood has turned sour. Individual investors had been growing increasingly bullish during the summer but turned sharply bearish as negative news began to mount.

The gut punch of Afghanistan policy. The delta variant, White House mandates, and fresh economic concerns. Growing consternation about Fed policy and the direction of interest rates. Congress debating more major spending initiatives and another major tax overhaul amid self-imposed tight deadlines. Another debt limit debate and U.S. default scare looming with all the corresponding rhetoric. And then news this past weekend that the second largest property developer in China could go bust, potentially leading to contagion. That sort of news out of China usually wouldn’t be such a big deal on a day that saw investors in a better mood. That wasn't yesterday, unfortunately. 

While these topics are being covered at length by many, the most pressing issues for investors are tax changes, more spending, and the debt ceiling debate. Along these lines I wanted to share a recent podcast from Michael Townsend, Schwab’s rep in Washington. Michael is a level-headed non-partisan who reports on all things D.C.-related. In this episode he breaks these issues down and discusses his growing concern with how things are evolving in Congress.


Even though I admit to feeling the mood myself lately, I’m not overly concerned from an investment standpoint. We have to deal with risk daily and I’ve been reminding myself in recent months how lucky we’ve been to see the kinds of investment returns we’ve had with such low volatility. That can’t last forever and a spike in “vol” like this is good for markets. It shakes things up a bit, creates opportunities for rebalancing, and allows new money to be put to work at lower prices. I wish volatility wasn’t so on-again-off-again, but that’s been the case for years now. We play our hand with the cards we’re dealt, right?

As I write this Tuesday morning it’s good to see the futures markets bouncing a bit from yesterday’s close. It was also good to see “the smart money” start buying in the last 15 minutes or so of yesterday’s market, causing the Dow to close down about 614 points, which was an improvement from being down over 900 at one point. That brightened the mood a smidge, but not like a strong Turnaround Tuesday would. We’ll see how things play out in the coming days.

Have questions? Ask me. I can help.

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People in Motion

So many anecdotes, so little time. We’ve all heard stories about how high local housing prices have gotten, even amid five years in a row of the fire season new normal. While this trend has been present for some time and for a multitude of reasons, the pandemic really kicked prices into high gear.

People are on the move and looking for a reset. They’re moving out of cities and into the burbs and beyond. They’re moving closer to family in another state. They’re “cashing in” and retiring early and are maybe unsure of where to go next. Couple this with an abundance of downsizing cash and years of low interest rates that keeps money moving and you get our sometimes wild and unpredictable housing market. A home, with all its challenges, can be a refuge from all the uncertainty out there in the world, so it makes sense that many folks are trying to upgrade their spaces and places, so to speak.

It’s too early to tell the pandemic’s full impact on population change around the country. We see it ourselves and hear the stories, even though “official” data isn’t available yet. The 2020 Census only caught the first few months of the pandemic before most people started moving. But the data confirms a longer-term trend: people are leaving expensive major metro areas for less expensive suburbs, or even less expensive major metros. And the pandemic accelerated these trends. Per the census, people have tended to stay within their metro area, but anecdotally it seems like a growing number are going farther afield. But where is everyone going? Again, official data is sparse but other data paints an interesting picture. The following three rankings offer good examples of this.

The first is from U-Haul and shows the net-gain of one-way moving trucks entering each state during 2020. Tennessee saw the most move-ins while California was last after ranking 49th in 2019 – again the pandemic accelerated an existing trend. Texas, Florida, Ohio, and Arizona rounded out the top five.

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