Thursday, June 3, 2021

Declining Buyers/Renters, Increasing Housing Supply = Soaring Home Valuations (WTF???)

As the old adage goes, real estate is all about location, location, location. Given this, I wanted to offer a regional and state by state view of the situation, where declining total populations, large declines among those employed, and declining under 60 year old populations are taking place parallel to a resurgence in interest rate driven home valuations and building.

First, annual change in regional total populations. Growth in all four regions is decelerating but outright declines are now underway in the Northeast and Midwest.

Annual population change (millions), by region over the last decade. Decelerating growth and outright declines.
Northeast
Year over year change in total population, employees. Long decelerating population growth in the Northeast has turned to an outright declining population. The growth of the population is always a governor of the potential growth of those employed.
Year over year change in under versus over 60 year old population. On an annual basis, the Northeast under 60 year old population is now declining by about a half million, or equivalent to losing a city about the size of Baltimore annually. This working age depopulation reduces the quantity of potential employees, potential home buyers/renters while the quantity of elderly (potential home sellers) soars.
Northeast, putting it together.
  • declining total population
  • declining under 60 year old population (potential buyers) versus soaring elderly population (potential sellers)
  • large decline among employed (potential buyers/renters) and shrinking future quantity of potential employees
  • record low mortgage rates
  • accelerating building activity and rising number of total housing units
  • rising home prices
Midwest
Year over year change in total Midwest population, employees. Decades of decelerating growth have turned to what is likely to be decades of population declines.
Year over year change in Midwest under 60 versus over 60 year old population. Midwest under 60 year old population is declining by about 350 thousand annually, or equivalent to losing a city the size of Cleveland annually while the 60+ year old population grows by about the same.
Midwest putting it together...
  • declining total population
  • declining under 60 year old population (potential buyers) versus soaring elderly population (potential sellers)
  • large decline among employed (potential buyers/renters) and shrinking future quantity of potential employees
  • record low mortgage rates
  • accelerating building activity and rising total number of housing units
  • elevated but stable home prices over last decade
West
Year over year change in total population, employees. Accelerating deceleration of growth...and potential growth.
Year over year change in under 60 versus over 60 year old populations. Under 60 year old population now falling by about 200 thousand, or equivalent to losing a city the size of Tempe annually. Again, this accelerating deceleration is also an accelerating deceleration of potential future growth...or likelihood for outright declines among employees, consumers, homebuyers versus soaring quantities of elderly.
Pulling it together
  • decelerating total population growth
  • declining under 60 year old population (potential buyers) versus soaring elderly population (potential sellers)
  • large decline among employed (potential buyers/renters) and decline potential for future employment growth
  • record low mortgage rates
  • significantly accelerating building activity and rising total number of homes
  • soaring home prices
South
Year over year change in total population, employees. The South is the primary source of US population growth, although deceleration is also apparent here.
Year over year change in under 60 versus over 60 year olds. The decelerating growth of under 60 year olds means a significant deceleration of potential employment growth, even in the South.
Pulling it together
  • decelerating total population growth
  • decelerating under 60 year old population (potential buyers) versus soaring elderly population (potential sellers)
  • large decline among employed (potential buyers/renters) and decelerating potential for future employment growth
  • record low mortgage rates
  • significantly accelerating building activity and rising total number of homes
  • soaring home prices
State by State Basis
The number of  states experiencing outright depopulation is soaring....and the current 17 states depopulating as of 2020 are likely to be joined by another 13 states transitioning into depopulation by year end 2021.
States experiencing depopulation in 2020.
States with minimal population growth...likely moving to outright depopulation in 2021.
States still growing but with decelerating growth.
States with population growth in excess of 1%. Only Idaho and Arizona seeing accelerating growth at present.
However, by my quick calculations as of 2020, there are 38 states with declining under 60 year old populations...and only 12 states that continue to have increasing working age populations, potential buyers, and rising organic demand. But the number of state still persisting with working age population growth will be falling to single digits in the next couple of years.

Breaking these dynamics down, on a state by state basis.

California
Year over year change in total California population and employees. Decelerating population growth has turned to depopulation.
Year over year change in California under and over 60 year old population. The total population declines seen in 2020 shouldn't have been a surprise as the inverting demographic pyramid has long been underway in California. Clearly, the total population decline will be persistent and the potential for employment growth will be limited by the declining working age population.
Soaring California home prices and rising building activity (thanks to Federal Reserve driven consistent decline in mortgage rates) against the backdrop of secular depopulation. Experts explain that the rising housing price are due to a housing shortage rather than a speculative frenzy...but the data suggests otherwise.
Michigan
Year over year change in total population, employees.
Year over year change in under 60 versus over 60 year olds.
Michigan rising home prices and rising building activity versus declining total population, working age population, and employees.
West Virginia
Year over year change in total population, employees.
Year over year change in under 60 versus over 60 year old population.
West Virginia is experiencing rising building activity and consistently rising home values on falling numbers of employees, falling total populations, and falling working age populations. The term FUBAR seems appropriate here.
Illinois
Year over year change in total population and employees.
Year over year change in under 60 vs. over 60 year old population.
Illinois is a poster child for the Fed's impact on housing valuations against all organic fundamentals. Rather than the cost of shelter reflecting it's fair market value...it reflects what the Fed and banks need it to be...otherwise the Fed and banks holding these mortgages are sitting on worthless paper that likely should be marked to zero.
What is the Federal Reserve's role in pushing housing prices higher? The Fed sets the federal funds rate (overnight basis of lending) which is the basis for the rest of the interest rate curve. The Fed's ZIRP (zero interest rate policy) coupled with the Fed's purchasing of US Treasury's and mortgage backed securities has backstopped the housing market. What private entity would buy 30 year mortgages in places that are currently experiencing depopulation and will see large scale depopulation over the lifespan of that loan??? Despite the majority of America that is either seeing outright depopulation or depopulation among under 60 year old populations...demand for housing is soaring...just like the Fed's holdings of MBS and long Treasury bonds.
The soaring housing demand is real but for all the wrong reasons. It is not really an inadequate supply of housing but an oversupply of liquidity with a shortage of potential assets from which to earn a "safe" return. Prior to 2008, retirees and those approaching retirement would tilt their portfolios toward bonds to lessen the volatility of "riskier" stocks. But with the Fed's decade+ of ZIRP (artificially collapsing bond / CD rates), the soaring population of soon to be retired / those in retirement turned their gaze toward RE. Demand for 5%, 6%, 7% "safe" returns provided by being a landlord replaced bonds. Foreigners, speculators, flippers all followed the rising trend.

The Federal Reserve driven real estate wealth effect has homeowners believing they are sitting on real wealth as their home value soars and mortgage rates plummet. The Fed, just like Bernie Madoff, is running a Ponzi whereby homeowners believe themselves to be rich (think HELOC or reverse mortgage or MEW). The only difference between Madoff and the Fed is that the Fed can print all the dollars it wants (inflation be damned)...if/when need be, the Fed (or some tasked entity) is likely to begin buying up excess housing with money from its printing press (even if it's only to demolish it). This will likely begin in rural states/areas all over America where the depopulation is most severe.

But the worst impacted by this Fed Ponzi are young adults. They have little to no assets (rising with the Fed's flood of liquidity). They are drowning in soaring rents, predatory lending for education, costs of daycare, insurance, co-pays, and general inflation. They are getting more education, taking on more debt, and having less to show for it. This has resulted in a dramatic rise in the age of first marriages, collapsing fertility rates and births.
Essentially, the farther the Fed (and CB's worldwide) go with its asset inflation scheme (the basis of the domestic and global inflation spike alongside an global shutdown/restart of production), the lower the future population sinks...and the more impactful and powerful the Fed becomes.

Saturday, April 24, 2021

Federal Reserve Induced Inflation Has Resulted in Collapsed US Births...Twice

Total US births are collapsing and likely to continue falling significantly further over the coming decade(s). However, this isn't our first rodeo...as total births collapsed during the 1960's 'til early '80's...almost inexplicably against a fast growing childbearing population. And now, since 2007 (and not just a C-virus one off), total births have again collapsed against a growing childbearing population. I will make the case that much of this comes back to the Federal Reserve's policies to foment stagflation/inflation which have created the birth dearth(s). Young adults (potential parents), like the canary in the coalmine, are among the most economically vulnerable to the Fed fueled asset inflation (with lagging pay increases and little to no assets riding the bubble, at least partially offsetting the rising costs of living). Their determination to delay marriage and children is the ultimate barometer of the US economic wellbeing.

The chart below (1950 through 2040) shows annual US births (blue columns...regardless parents legal/illegal status plus Census '00/'08 birth projections through 2040), actual births (blue dashed line...including my projection from 2020 through 2040), 20 to 35 year old female childbearing population (pink line...representing roughly 80% of births among 15 to 45 year old total female childbearing population), and soaring 45+ year old post-childbearing female population (yellow line).

Looking at the US childbearing female population, there is no growth anticipated through 2040, while fertility rates continue tanking due to a slew of economic / pandemic / environmental / overpopulation concerns. The Census continued projections for rising fertility rates and total births is poorly founded.

Viewing the year-over-year change in 20 to 35 year-old childbearing females (pink columns), annual births (dashed blue line), and Federal Reserve set Fed Funds rate % (black line). We are looking at two periods of collapsed births in the US since 1950...both in conjunction with significantly increasing female childbearing populations (which of and by itself, should have resulted in flat to rising births). Instead, upon the initiation and continuation of major stagflationary/inflationary interest rate policy changes, fertility rates and total births fell precipitously. 

Below, take a gander at US fertility rate (children per females) vs. Federal Funds Rate %. While other segments of the population fared far better thanks to offsetting asset inflation, young adults were not so lucky and chose to delay/refrain from marriage, family formation, and having children.

The age of first marriage for both males and females has soared by almost a decade (chart below), while the 30 year'ish window of fertility has not really changed. Females of most species can give birth during 80%+/- of their lifespans. Our species is capable of childbearing during only about 40% of the lifespan (females typically reach menopause by age 50). At age 30, 75% will be pregnant within one year of attempting to do so. By age 40, the odds drop to 40%. Also, risks of adverse outcomes for the child/mother rise dramatically as the mothers age increases. At age 20, 1 in 1,441 births will result in Down Syndrome...by age 45, 1 in 32. Simply put, women are more fertile and births are less challenging on mother and child while women are in their prime childbearing years from 20 to 30...but the current economic system simply doesn't support this option.

Due to economic / financial pressure, dual-income households have become the norm. The percentage of childbearing age females in the labor force now is nearly double the post WWII situation. Since 2000, females have fluctuated between 65% to 70% labor force participation...well above the 40% seen in 1960 (white line below is raw female 15 to 54 year old employed / population ratio).

In order to achieve financial strength / independence, the number of women getting secondary educations has soared. As of 2019, a greater percentage of females (36.6%) have four-year or greater college degrees than males (35.4%)...compare that to the pre-war situation of 1940, with 3.8% & 5.5%, respectively. Obviously, the 4+ years of education plus the associated soaring student loan debt has pushed marriage, homeownership, and children to the latest on record.

The average age that a female first marries has soared from 20 in the 1950's to somewhere beyond 28 years old in 2021. Consider...
-The average age of a mother at first childbirth is now over 26 years old
-The average age of a married mother at first childbirth is now over 29 years old...versus unmarried mothers closer to 24.
-Women with a college education (heavily impacting financial capability of supporting a family) are now approaching 31 years of age before first childbirth versus 24 w/out a college degree.

It's also important to note that the decline in births is not due to abortion. Total abortions and abortions to live-birth ratio continue to decline from the 1980's, early 90's peak. Total abortions are down 50% since peak, and abortion to live-birth ratio is at record low levels since Roe v. Wade in 1973. Still, as of 2018, abortion to live-birth ratio was 189 abortions per 1000 live births...still significant (& massively contentious), but my point is it is a decelerating impact on total births.

Below are the Census projections for births, going back to '00, '08, '12, '14, and 2017. As can be seen, births continue to massively undershoot the Census projections. Much of the miss can be attributed to bad assumptions regarding Latino immigration rates and fertility rates...which have both been far lower than projected by the Census. The Latino population has normalized to the much lower fertility rates and economic situation than the Census could conceive.
From 2009 through 2020, there were 6.6 million fewer births (-12.5%) in the US (regardless legal/illegal status of the parents) than the Census projected there would be, in both it's 2000 and 2008 projections. Given the flat childbearing female population, soaring average age at first marriage, and collapsing fertility rates, I'm projecting nearly 15 million fewer births (-30%) over the next decade than the '00/'08 Census projections.

So What? Ultimately, the most inflationary thing in an economy is population growth and family formation. But the Fed's policies, although advocating inflation via substituting currency dilution, interest rate mismanagement, quantitative easing, etc., is actually the basis of long term deflation. The merits of a financial system requiring infinite growth against an economic system meant to supply the finite needs of a population (with little to no population growth) should have been debated long ago. Now the economic system is being poked and prodded with stimulus, ZIRP, QE, untold leverage, etc. to synthetically produce growth for a financial system that can be called nothing more than a Ponzi scheme. The faster the substitution of these synthetic proxies (and their asset inflation impacts), the faster the decline in births will be. All of the trends in place to push births lower are accelerating. Whether this is intentional or de facto, I can't say...but the outcome of collapsing US (and worldwide) births is clear.

Thursday, April 15, 2021

Ever Fewer People Need Ever More Money...Said Nobody, Ever (Except the Federal Reserve)

15 to 64 year old US working age population versus Federal Funds Rate & US currency in circulation. Honestly, no words are necessary.

Year over year changes in 15 to 64 year old US working age population versus currency in circulation.
Ever fewer people need ever more "money"...BRRR.

Just for fun, observing America through it's 15 to 54 year old population (blue line) and those employed among them (green line).
Now adding in the Federal Funds rate and the impact of "free money" on US federal marketable debt.
Add in the Fed's balance sheet (yellow line) plus the Wilshire 5000 (blue line...all publicly traded US equity).
Lastly, the 15 to 54 year old raw employment/population ratio. Asset owners rejoice, the Fed has a long way to go to fulfill it's "full employment" mandate...assets will soar until full employment is achieved.
And what is the impact on America's young adults...soaring age at first marriage...collapsing births.
Out of necessity of paying the soaring costs of living...females fully brought into the labor market and seemingly unable to step away for the luxury of having a family.
Widest possible view on childbearing females...and births.
And here is America by 15 to 40 year olds (yellow line), 40+ year olds (red line), and annual births (blue columns) plus my best estimate through 2040 (blue dashed line).
Soaring debt, asset prices, fueled by ZIRP are enriching asset holders (America's past) at the expense of young adults (America's future). Whether this is policy error or intentional is open for debate...but no debate about the destruction of the future of the US to safeguard it's past.

Friday, March 5, 2021

The Narrative of Inflation Amid Depopulation

Next to language, money is the most important medium through which modern society communicates. The Federal Reserve is responsible for signaling how fast this money should be created or destroyed via its federal funds interest rate. When demand is high and capacity/supply low, the Fed should ideally make rates low to support growth of loans to boost capacity/supply. When demand is low and capacity/supply high...the opposite. Instead, the Fed is doing the inverse...trying to focus on getting consumers to use more credit/debt (think record low mortgage rates) to create more demand and necessitate higher capacity (think homebuilders).

In a ridiculously difficult chart to decipher below (so I'm told), I highlight the year over year change in working age population (yellow shaded area), year over year change in employees among them (grey shaded area), housing permits (blue line), and the 30 year mortgage rate (white line...driven by the Federal Reserve's federal funds rate and MBS purchasing). The current situation of soaring permits against declining working age population and tanking employees among them...overridden by the speculative fervor created by record low mortgage rates is a case in point.


But in an economy, the production and consumption of goods and services are used to fulfill the wants and needs of those living within it. Very basically, the major driver of economic growth is the growth of that population of consumers, their income, savings, and access to credit. If that population is growing at 1.5% annually then you can add an additional 1.5%+ growth for maintaining &/or building out greater production, supply chain, housing, infrastructure, etc to support that larger consumer base.  This essentially gets us to a 3% growth in GDP. 

So what is happening when there is little, no, or negative population (consumer) growth but GDP growth is still being targeted at 1.5% or 3% or (as in China's case) 6%? What the Fed is trying to do is get a zero population growth (trending to declining population) economy to "grow" via cheaper debt, more debt, and serial bubble blowing. If I was a PhD at the Fed, I'm pretty sure I'd make it sound more complicated and mysterious...but I'm not and it isn't.

Anyway, couple of interesting factoids I thought I'd put out today that may be tangentially of interest. If Brookings Institute (and many others) are correct in their research that 2021 births are likely to decline somewhere between 300k-500k due to the pandemic...2021 births will essentially be back at the same total number of births as 1921...exactly 100 years ago, in the wake of the influenza pandemic (chart below).

Putting this round trip in births into perspective, over those same 100 years, the total US population has more than tripled (below).
Narrowing in from 1950 to present...it should be clear the growing total population is not seeing likewise growth of births (below). Why?
The answer is humankind is different than almost every other species on planet earth, and the female of our species has a relatively truncated period of fertility comprising only about 30% of their lifecycle. Most other species females period of fertility are nearer 75%+ of their lifespan  This means that the significantly larger human population means little for childbearing, and only by narrowing in on the 15 to 40 year-olds can we see what is really going on. The yellow line below is the US childbearing population which has been flat since the mid 1980's...while the 40+yr/old population has been living decades longer than their predecessors. Couple the flat childbearing population with a falling fertility rate, and the US is looking at a secular collapse in births and subsequent decline in young amid a soaring elderly population.
Below, since ZIRP was initiated, encouraging soaring marketable federal debt, the opposite reaction has been observed among young adults with tanking marriages and collapsing births (thanks to soaring asset driven costs of living vs. relatively flat real wages/declining benefits/etc.).
Putting that soaring debt into view on a per birth ratio, (below). We are looking at ever fewer children (future adults) responsible for repaying/servicing/inflating ever more debt on a radically rising basis.
So, when I show the year over year change (qtrly basis) of the total population versus GDP since 1960, it should be clear why we need the economy to grow ever less in order to serve us...because there is ever less growth to be served by the economy (below)! 2020 growth was 1/7th that seen in 1960 (yes, on a % basis).
And when I include the year over year change in the working age population (15-64yr/olds...red line below), well, we now have outright declining annual demand from the segment of the population that drives the economy...so flat'ish GDP should about be adequate to take care of flattish demand? But the Fed would  call that recession and provide more interest rate cuts, more QE, more acronyms yet to be invented to goose activity to suit the needs of the financial system.
So, the Federal Reserve is targeting 2%+ GDP growth (really, significantly higher) against minimal population growth (minimal rising demand) because the economy is no longer about serving our needs...it is now we and the distorted/manipulated economy that is serving the needs of the federalized financial Ponzi scheme. As the chart below highlights, as the Federal Reserve has pushed rates ever lower, this ever cheaper/greater debt has not served the people or GDP...instead it has rewarded the minority asset holders for being asset holders...simultaneously punished the majority non-asset holders for not holding assets.
It's usually at this point people start to ask what's it all about...what is the end game? Since the Fed is privately owned by the largest banks in the world (and they are owned by the 1% of the 1%)...why do these people need more money? I think the simple answer is they don't need more money. This isn't about turning their hundreds of millions into billions or billions into tens of billions. I detail the US domestic demographic, economic, financial picture HERE...but no, there seems a different point to all this than making the fabulously wealthy wealthier...suggested HERE.

Summary - 
The US (and world, at large) is looking at an unexpected and increasingly large decline in births, young, and working age adults. The declining child bearing populations coupled with increasingly negative fertility rates are resulting in an inverted pyramid of continued growth among elderly propagating the collapsing population of young. The result is we appear to be at a tipping point that will result in a realignment of nearly the entire demographic, social, political, economic, and financial systems we've come to know and expect. This realignment is likely to be like a magnetic field realignment built around de-growth, managed decline.

Extra Credit for those curious on market valuations...never have investors paid more for less potential growth among consumers (and never, ever have investors paid anything for a declining base of consumers...so FUBAR...but that is where the Fed has led us, so what else you gonna do?). Below, Wilshire 5000 (green line, representing all publicly traded US equities), market value of federal debt (red line, as per Dallas Fed), and year over year change in working age population (yellow line).