Late July is always known to be the Dog Days of Summer. Hot, humid, hazy and lazy. Growing up we had Black Labs for pets. They were always pretty active, always happy to see us and eager to play, except in July. You would find our dog lazing under anything that would provide shade and never far from a water bowl in July. With a black coat of fur hugging them, I never blamed them for taking July off. Hopefully you can find some time to loll in the sun and enjoy the summer weather.
I want to spend time this week discussing some real estate market information that has come to my attention in the last month. Of course, the rise in interest rates has dampened the housing market. New starts are down, new permits are down and existing houses are now on the market just a little bit longer than earlier this year. In a number of markets sellers are dropping their list prices. That has not happened since 2019. There is no sign that this new trend will be changing. While housing values have not declined, we could see that occurring later this year.
While rental rates are at all time highs, the increase in the past two years in single family housing prices have raised monthly house payments even higher. For many, renting continues to be more financially attractive until prices come down. I want to be clear, this is not because rental payments are low, they are not. In June the average monthly rental was at $1,876. That has increased 12% in the past year. That alone is stressing many middle to low income families. However, the average monthly cost of owning a home is now $2,437, stressing even those with good incomes. To qualify for the average cost, your income now has to be between $88,000 and $102,000. Even in the tight labor market where job openings are still high, that is a tough nut to crack for many families. The US Median household income, according to the St. Louis Federal Reserve is $67,000. That leaves those looking to own a home to have to be in the top income levels, well above average.
In the UK there has been a recent change in the residential real estate market. When businesses began shutting down and remote work became popular, companies shed office space. While many companies that are office related are now saying it is safe to come back to the office, many workers are balking, looking for a way to avoid the commute, among other detractors of having to go to the office. The reaction in England is not to fire or threaten workers, but rather modify office space into residential space. If workers desire, they can either rent or purchase residential units in the buildings where they work. As the need for office space is declining, this is a great way for workers to move closer to their work. We will see how this works out long term as well as whether it catches on in the US.
Inflation in certain select areas is ebbing, but prices remain very high. With the trade agreement in Europe signed this week we can expect some relief in the food prices. Both soy beans and corn are down significantly in price due to opening supply from the Ukraine. Oil continues to abate as demand has softened and supply levels are steady.
The offset here is that manufacturing supply chains continue to be stressed. China still has production issues due to covid. A California Truckers strike over the state law defining Gig Workers briefly shut down the Port of Oakland. If that strike spreads, the ports in California could be negatively impacted with product piling up with no place to go. Lastly, Europe. Germany, as with the rest of the region, has experienced hot temperatures as well as a lingering drought over the last two years. The Rhine River in Germany is now at levels where barges cannot pass through. A normal level is 210cm. The river near Kaub and Dusseldorf is now at 70cm. Beneath 40cm all river traffic will halt. As rail and roads are less prevalent in Europe than the US, river traffic is the key transit path for manufacturing and other goods. Since barges are unable to navigate the rivers in some areas, product cannot get to the seaports to be sent to the US and the rest of the world. These issues, along with some others, will continue to keep prices high and supply short on some products.
This coming week we will get a first feel for how manufacturing in the US is doing as three Federal Reserve Banks will be releasing the July data. The early indicators do not look promising.
Have a great week.