U.S. Economy as Reflected by our Financial Markets

It is useful to consider the direction of prevailing economic trends as reflected in our financial markets when making a decision as significant as the purchase of a new home. While there is no guaranty with regard to the future direction of our major financial markets, I believe the best decisions are well-informed decisions:         (charts updated 9/17/18)

 

Interest Rates

Measured by the U.S. Treasury Yield:

20 year (purple)
10 year (Blue)   
   2 year (green)  

Mortgage rates are pegged to these yields:

Current Mortgage Rates  

  

 

 

Major Securities Markets 

Emerging World Markets (green)
U.S. Securities (blue)
U.S. Bonds (purple)

- 1 year performance percent - 

 

 

 

 

  

 

 

Commodity Markets

Materials (gray)
Oil (purple)
Gold (brown)
Agriculture (green)

Composite/all markets (blue)  

- 1 year performance percent -

 

 

 

 

 

U.S. Real Estate Markets

New Residential Construction (green)
Secondary Mortgage Market (purple)
Real Estate Investment Trusts/REITS (gray)
Composite/Real Estate Markets (blue)

- 1 year performance percent - 

 

 

  BUILDING WEALTH

Over time the ownership of real estate has proven to be an effective method for building personal wealth. Property values increase in a growing local economy as the demand for real property (whether residential, commercial, industrial, agricultural or recreational) spurs the demand. The added benefit for personal use of the property while its value increases enhances the incentive for property ownership.

Historically, in our local market we have witnessed property values fluctuate over roughly ten year cycles. Of course purchasing near the bottom of the cycle enhances the potential for appreciation. No one can predict the course of these cycles so a buyer of real estate does absorb risk. On balance, with appreciation potential, income tax incentives, and the security of ownership the motivation for home ownership is as strong as ever. It has been a great personal pleasure to assist hundreds of Utah individuals and families secure their new home and share in this wealth building process.

For many real estate ownership may be the key to wealth building. With our expanding wealth in the United States becoming more concentrated into the hands of of the "already wealthy" the economic potential of real property, even that first purchase, creates a footing on which additional economic potential may blossom. The opportunity to build "equity," borrow on that equity through a "home equity loan," or eventually harvest that equity for down payment required to leverage the purchase of even more valuable property is a proven formula for building wealth. This is the obvious advantage of "ownership" over renting.

The imperative to seek ownership, or for that matter expand holdings, may be best illustrated by the trend of wealth building in America. The following chart shows the distribution of wealth among the Top 10% and the Bottom 90%, with the Top 10% split between the wealthiest 0.1% and the remaining 9.9%:   (chart credit: Matthew Stewart, Atlantic Monthly, June 2018)

Trend in the Distribution of Wealth in the United States

Trend in the Distribution of Wealth in the United States

The chart illustrates that the share of wealth enjoyed by the Top 10% is relatively consistent. However, the amount of wealth controlled by the highest tier of that group (Top 0.1%) is climbing steadily while the percentage held by the bottom 90% is dropping commensurately. The chart suggest that the Top 0.1%, consisting of approximately 160,000 households, is gaining wealth that would have historically gravitated to the Bottom 90%. This trend clearly suggests that it is only becoming more challenging for the majority of Americans to succeed in the wealth building process. I believe this clearly indicates why the effort to achieve home and or/real property ownership - and the concurrent opportunity to build wealth - is more timely now than ever before.