Spreading the Wealth? 2009 - 2011 Sees Gains for Top 7%

According to data recently released from the U.S Census Bureau and analyzed by the Pew Research Center, 2009 to 2011 (sometimes thought of as the first two years of the recovery) saw mean net worth gains of 28% for the top seven percent of households.  The lower 93%, however, saw net mean losses of 4%.  Putting numbers to the percentages, that accounts for 8 million households in the top seven percent and 111 million households in the bottom 93%.

According to Pew, these difference occurred owing to the changes between the stock and bond market and the housing market;  more affluent families tended to have financial holdings in the stock and bond markets, while less affluent families wealth tends to be stored in their homes.  The ensuing difference in markets let to the top seven percent of households owning 63% of the nation's aggregate wealth in 2011, which was an increase from 56% in 2009.

Seasonal Spike in Jobless Claims

Americans seeking unemployment aid rose sharply in the past week.  According to the Associated Press,  38,000 Americans filed for unemployment, making the seasonally adjusted total 368,000.  In addition, the number of applications fell by 45,000, reaching a five-year low.  Reasons for the increased amount of unemployment is the termination of seasonal retail work.  As such, it hasn't caused much alarm among economists, who are projecting that January's job report will show that 155,000 more jobs were added and that the employment rate will remain constant at 7.8%.

The article suggests that steady hiring will counter the contraction of the national economy that has been caused by decreased military spending and fewer exports.  Positive signals for the economy include increases in consumer spending (which accounts for 70% of activity), business investments in equipment and software, and rising housing prices.

California's Recovering Economy

Adam Nagourney, writing for The New York Times, examined California's recovering economy.  Compared to the rest of the nation, the Golden State experienced one of the longest and harshest downturns, spurred on by widespread foreclosures and a ballooning unemployment rate that surged to over 12.4% in mid-2010.  But by October, unemployment had dropped to 10.1% - high for most states, but a marked improvement for California.  In fact, the month-to-month drop from August to September (10.6% to 10.2%) was the state's largest decrease in the 36 years since it began tabulating unemployment statistics.  The housing market is recovering as well.  Home sales are up 25% from a year ago, and houses are staying on the market for a shorter period of time and selling for higher prices. The California Legislative Analyst's Office projects the state to post a $1.9 billion deficit next year, and perhaps even a $1 billion surplus.  California's deficit was at one point over $25 billion – bigger than many states' budgets.  With that said, a significant geographical divide characterizes the recovery.  Coastal areas are posting much lower unemployment rates and possess healthier housing markets than the inland areas.  Additionally, by some measuresCalifornia still has the worst poverty rate.  The state has rebounded significantly, but still has considerable work left to be done.  

Housing Starts and Prices Rise

The U.S. Department of Housing and Urban Development’s September report on new residential construction illustrated a 15% jump in housing starts.  The annual rate rose to 872,000 in September compared to 758,000 in August – the highest level in four years.  The 872,000 new residential construction projects is well below the heavily inflated annual rate of over 2 million, which was the norm while the housing bubble remained intact.  Housing starts bottomed out in mid-2009 at 478,000, but have since rebounded nicely.  Coupled with housing starts is housing prices, a figure that is highly important in understanding the overall housing market in America.  The Case-Shiller Home Price Indices, a measure of home prices in 20 major metropolitan regions in the U.S., showed a 2.0% increase in prices from August 2011.  This is the largest increase in two years, and represents three straight months of year-over-year gains.  

Underemployment Continues to Fall, But Is Still Double Pre-Recession Level

With the jobs numbers released this past Friday, highlighting Gallup's underemployment statistics provides another look into the employment situation in America.  Gallup defines underemployed workers as those who work part-time but desire a full-time job, along with Americans who are simply unemployed. This figure is an important supplement to the BLS' jobs numbers, as it illustrates the lingering frustration within the American economy that is not quite as apparent in Friday's optimistic report.  While underemployment has tailed off in recent months, it's still well above levels seen before the recession.  16.5% of workers are underemployed, down from over 20% in 2010 and 18.1% this time one year ago.  Before the housing bubble burst and drove the economy into a downward spiral unseen since the Great Depression, underemployment had sunk to below 8%, but as companies laid off workers and scaled back domestic operations, Americans were left struggling to find full-time employment, prompting a spike in unemployment and underemployment.  Still, though, the 16.5% underemployment rate is the lowest since the start of the recession, and it continues to steadily drop as the year progresses.  

Housing Prices Still Low, But Sales Fail to Pick Up

While housing prices have stabilized, the quantity of one-family homes sold throughout the U.S. continues to fall to levels unseen in decades.  Though prices continue to rebound, the median cost of a single-family home is still at its lowest in 8 years ($227,000).  The drop in price, however, has not motivated Americans to buy homes.  The Department of Housing and Urban Development’s estimates the sales of new single-family houses at a seasonally adjusted annual rate of 372,000.  Though up 25% from July of last year, housing sales haven’t been this low since before the Census began tracking the figure in the 1963.  Sales fell 76% from 2006 to 2011, and have yet to show significant periods of recovery.  With a record low number of houses starting construction this year, and an unemployment rate still above 8%, the recession’s lingering consequences still hinder a sales rebound.  With that said, prices have fallen three straight months; will relatively low prices incite a rebound in the housing market? 

Brookings Institution Finds Economic Recovery in Metro Areas to be Sluggish and Uneven

The Brookings Institution released its July Metro Monitor, in which the organization inspects key economic indicators from each of America’s 100 largest metropolitan areas in order to assess the national recovery.  The findings point towards a sluggish recovery.  Since the fourth quarter of the previous year, employment among the U.S.’s most populated regions rose 0.5%, unemployment fell 0.3%, GDP grew 0.6%, and housing prices decreased 2.1%.  Brookings points out diminishing GDP growth and meager job numbers as the most troubling indicators. 

Texas metro areas, due to a booming natural gas sector, experienced a more mild recession, and have thus pulled out of the downturn better than most regions.  High-tech metro areas such as Boston, Raleigh, San Jose, and Seattle have benefited from stabilization in housing prices, while on the other hand the majority of metro areas in the west have performed poorly.

Housing Construction Starts to Rise Slowly

The U.S. Department of Housing and Urban Development issued its monthly press release on May 16^th regarding residential construction in April.  Privately-owned housing starts were at a seasonally adjusted annual rate of 717,000, up 2.6% from March, and up 29.9% from April a year ago.  This rate is up only marginally since February 2009, when housing construction hit rock bottom and the annual rate was only 583,000.  Before the recession, the housing starts rate was well over 2,000,000.   The seasonally adjusted annual rate of building permits, an indicator for future construction, was at 715,000.  This rate was down 7% from March, but chalk the decrease up to the volatile apartment category, which dropped 23%.  The building permit rate was also 23% above the April 2011 estimate of 578,000.

Foreclosed Homes Threaten to Further Weaken Housing Market

An article in the New York Times centered on the concern among some economists that the large number of foreclosed homes owned by banks and mortgage lenders will "deepen the housing slump and create a further drag on the economic recovery." The fear is that "the rise in lender-owned homes could create another vicious circle, in which the growing inventory of distressed property further depresses home values and leads to even more distressed sales."

Currently, big banks and mortgage lenders own over 872,000 homes around the country, are foreclosing on an additional million, and are expected to take control of another several million in the next few years. The impact is already being seen today, as "real estate prices have been declining across the country in recent months."

Lenders are having difficulty selling their properties quickly and at good prices, and in many areas they are repossessing more homes than they are selling. In Atlanta, lenders are repossessing eight homes for every one distressed home they sell; before the housing market's collapse, the ratio was typically one-to-one. According to the Times, "The reasons for the backlog [of unsold distressed properties] include inadequate staffs and delays imposed by the lenders because of investigations into foreclosure practices."

Concerns about the large foreclosed home inventories are real: economists predict that it would "take about three years for lenders to sell their backlog of foreclosed homes." Writes the Times: "As a result, home values nationally could fall 5 percent by the end of 2011, according to Moody’s, and rise only modestly over the following year. Regions that were hardest hit by the housing collapse and recession could take even longer to recover — dealing yet another blow to a still-struggling economy."

Says Mark Zandi, chief economist at Moody's Analytics, in the article: “Housing prices are falling, and they are going to fall some more.”

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