Americans Are Still Spending Like There’s No Tomorrow(wsj.com)
wsj.com
Americans Are Still Spending Like There’s No Tomorrow
https://www.wsj.com/economy/consumers/americans-are-still-spending-like-theres-no-tomorrow-6a1d307
55 comments
> Unrelated but Zillow says at 7.5% interest rates that house is now $750k+, weird... makes no sense... counter-intuitive, except for how tight the supply/demand situation must be)
I highly doubt this estimate is true, outside of very specific locales. Always ignore Zillow/Redfin estimates, and just look at comparable sales in the recent past.
I highly doubt this estimate is true, outside of very specific locales. Always ignore Zillow/Redfin estimates, and just look at comparable sales in the recent past.
If your algorithm worked better, don’t you think that would be the algorithm? You think those models don’t consider recent sales?
Zillow is a biased party, being a business that earns its income from home sales. They very well could publicize different figures than what they really think, although I think it is more likely that they simply do not have the ability to predict prices any better than most others.
Which is why they lost a ton of money in their home buying/selling division and shut it down.
Which is why they lost a ton of money in their home buying/selling division and shut it down.
that sounds illegal. if a platform has monopoly pricing power, especially on something like housing
Zillow has zero pricing power. Hence they lost a ton of money and shut down that part of their business.
afaik price fixing is only illegal when two parties conspire. If anyone knows about market manipulation regulation please correct me.
If you saw a $20 bill on the ground, you shouldn’t pick it up because someone else would have thought to do so already.
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Are you suggesting that the publicly traded, profit maximizing Zillow would suggest prices that are good for buyers rather than use their position in the market to control the price?
Apparently not in my area
Spot on for Washington state real estate market. Pre early and post pandemic.
There's a supply side to inflation too, of course, but "increased feeling of wealth" will definitely lead to higher spending on average.
Crypto did it too, probably on a larger scale than any money market fund - I know many people who bought a house on the proceeds from bitcoins they bought a decade ago.
But if increased demand happens in a market where: (a) new sellers can enter easily and (b) there's low startup cost to competing it will be more of a "rising tide lifts all boats" than a "compete to inflate the prices of the fixed quantity of goods" situation. (Housing is the latter - location, location, location, and construction would lag even in a zero-regulation world. And the difference between now and 2008 is that even if some of that is kinda "funny money" like crypto, there's still real money and real income involved, and less of a "a ton of people are going to have to sell in a hurry" pressure vs the wildly over-leveraged essentially-fraudulent buyers with crazy variable rate terms and such.)
Crypto did it too, probably on a larger scale than any money market fund - I know many people who bought a house on the proceeds from bitcoins they bought a decade ago.
But if increased demand happens in a market where: (a) new sellers can enter easily and (b) there's low startup cost to competing it will be more of a "rising tide lifts all boats" than a "compete to inflate the prices of the fixed quantity of goods" situation. (Housing is the latter - location, location, location, and construction would lag even in a zero-regulation world. And the difference between now and 2008 is that even if some of that is kinda "funny money" like crypto, there's still real money and real income involved, and less of a "a ton of people are going to have to sell in a hurry" pressure vs the wildly over-leveraged essentially-fraudulent buyers with crazy variable rate terms and such.)
It incentivizes you to continue saving the principal, rather than dump it into house. For others, higher rates disincentivize taking marginal credit card debt and large mortgages. Fewer businesses will get credit and will have less to spend on employees (who might otherwise be bidding up wages against other prospective employers).
> me having an "oversupply" of money will
So, if you were to buy a house you'd spend more for the next 5-10 years but because your payments are fixed, whereas rents will increase each year, there will be a crossover point where your mortgage+tax payments will eventually be quite low. So people who buy a house may pump more cash into the economy in the future. Plus theoretically, whoever sold you the house will be spending any extra cash they get from it (if they buy/rent in a lower cost of living area, or if the house was sold as part of estate that goes to a younger generation).
But yes, in the short term you might be pumping the economy with more cash than you would if you bought a house, depending on your ongoing savings rate vs. spending rate.
So, if you were to buy a house you'd spend more for the next 5-10 years but because your payments are fixed, whereas rents will increase each year, there will be a crossover point where your mortgage+tax payments will eventually be quite low. So people who buy a house may pump more cash into the economy in the future. Plus theoretically, whoever sold you the house will be spending any extra cash they get from it (if they buy/rent in a lower cost of living area, or if the house was sold as part of estate that goes to a younger generation).
But yes, in the short term you might be pumping the economy with more cash than you would if you bought a house, depending on your ongoing savings rate vs. spending rate.
> So... the Fed is raising rates to 5% to try and slow inflation. But now I'm earning 5% on a bunch of money to the point that it basically offsets my rent. ... doesn't that contribute to inflation?
I don't think your case is all that common. The vast majority of people don't have that much money such that they could earn say $1500+/month with rates at 5%. Offsetting you are a whole lot of people who only have a few thousand dollars available in case of emergency and many more who don't even have that.
(that said, I'm really enjoying making 5.5% on tbills.)
I don't think your case is all that common. The vast majority of people don't have that much money such that they could earn say $1500+/month with rates at 5%. Offsetting you are a whole lot of people who only have a few thousand dollars available in case of emergency and many more who don't even have that.
(that said, I'm really enjoying making 5.5% on tbills.)
I’m not a finance expert but don’t you need something like $350000 in the bank to make $1500/mo in interest?
https://www.calculator.net/interest-calculator.html?cstartin...
https://www.calculator.net/interest-calculator.html?cstartin...
Wouldn't most people with $350k and long investment horizon rather invest that in stocks? (actually asking, I have not idea, just a notion). $350k seems like a lot of money to leave in a money market account as opposed to in a diversified portfolio of stocks/bonds in a tax advantaged account. I'm thinking long term growth.
Inflation rates go up and down (i-bonds were not attractive until recently) and so do interest rates. The current 5% rate may not last for long.
Inflation rates go up and down (i-bonds were not attractive until recently) and so do interest rates. The current 5% rate may not last for long.
If I got a $350K windfall right now I'd probably put about 70% of it into tbills (6 month to 1 year paying ~5.5% right now) and another 20% into 2 to 5 year treasury notes (paying ~4.7% right now) with the remainder going into an S&P 500 ETF like VOO. I'd DCA into stocks & etfs as the tbills matured. You're right, these 5% rates probably won't last long (though some pundits are saying we're going to be seeing 6+% due to high demand and stubborn inflation so who knows...) but a 5.5% yield on ultra safe treasuries is too hard to pass up right now plus there's no state tax on that interest.
Yep. In a CD or a money market account of some sort. 26 week to 1 year Treasury bills are paying around 5.5%.
Don’t be overwhelmed by this response. I recently learned that the 1000 bucks thing is mostly based on Bankrates annual survey and it’s not actually true that they don’t have access to 1k, so this is a little bit an exploration.
> American households, on average, have $41,600 in savings, according to data last collected by the Federal Reserve in 2019.
And that’s before the free money era and the explosion of wealth from rising interest rates. Of course it’s also true that inflation could be taking a bite out of household wealth.
https://time.com/personal-finance/article/average-american-s....
People may not have enough saved for retirement, but that’s a separate issue.
The surveys of people not having cash on hand to handle a 1000 emergency or whatnot? That really has to do with your phase of life and economic conditions, and interestingly has been a relatively stable number even as inflation has increased.
It’s also really important to understand that they are based on unverified phone surveys about how people feel they are doing. Consider that they are asking people whether they could cover a one time expense, a month of expenses or three months of expenses. But they don’t ask whether people have access to money. The survey reports that “More than 2 in 3 Americans *would be worried* about having enough emergency savings to cover a month’s worth of living expenses,” so something to bear in mind.
https://www.bankrate.com/banking/savings/emergency-savings-r...
> American households, on average, have $41,600 in savings, according to data last collected by the Federal Reserve in 2019.
And that’s before the free money era and the explosion of wealth from rising interest rates. Of course it’s also true that inflation could be taking a bite out of household wealth.
https://time.com/personal-finance/article/average-american-s....
People may not have enough saved for retirement, but that’s a separate issue.
The surveys of people not having cash on hand to handle a 1000 emergency or whatnot? That really has to do with your phase of life and economic conditions, and interestingly has been a relatively stable number even as inflation has increased.
It’s also really important to understand that they are based on unverified phone surveys about how people feel they are doing. Consider that they are asking people whether they could cover a one time expense, a month of expenses or three months of expenses. But they don’t ask whether people have access to money. The survey reports that “More than 2 in 3 Americans *would be worried* about having enough emergency savings to cover a month’s worth of living expenses,” so something to bear in mind.
https://www.bankrate.com/banking/savings/emergency-savings-r...
>> American households, on average, have $41,600 in savings, according to data last collected by the Federal Reserve in 2019.
Average vs Median strikes again.
Median household has 4k. 70% don't break 10k.
It's the high end that weighs on that average pretty hard.
Average vs Median strikes again.
Median household has 4k. 70% don't break 10k.
It's the high end that weighs on that average pretty hard.
Not my intention. That’s why I provided the sources.
The data in the last link really is worth checking out. I don’t disagree with you, but the numbers I’ve seen numbers are off quite a bit from what you’re quoting.
Source?
Age Group Mean Net Worth Median Net Worth
Less than 35 $76,300 $13,900
35-44 $436,200 $91,300
45-54 $833,200 $168,600
55-64 $1,175,900 $212,500
65-74 $1,217,700 $266,400
75 or more $977,600 $254,800
https://www.firstrepublic.com/insights-education/average-ame...
The data in the last link really is worth checking out. I don’t disagree with you, but the numbers I’ve seen numbers are off quite a bit from what you’re quoting.
Source?
Age Group Mean Net Worth Median Net Worth
Less than 35 $76,300 $13,900
35-44 $436,200 $91,300
45-54 $833,200 $168,600
55-64 $1,175,900 $212,500
65-74 $1,217,700 $266,400
75 or more $977,600 $254,800
https://www.firstrepublic.com/insights-education/average-ame...
In your socioeconomic group, maybe. There are also probably a lot of groups for whom high interest rates decrease spending (those of limited means, those with extensive investments but minimal liquid cash, etc.). That's not to say that you're wrong, only that anecdotes don't make a trend :-)
(This is why the USG generally pursues a policy of low interest rates and mild inflation: it incentivizes consumer purchasing and investment to have an environment in which dollars in the bank very slowly their purchasing power over time.)
(This is why the USG generally pursues a policy of low interest rates and mild inflation: it incentivizes consumer purchasing and investment to have an environment in which dollars in the bank very slowly their purchasing power over time.)
IANREE (I Am Not a Real Estate Expert) so please take the following with a grain of salt. If you want to buy a house and believe you can afford one (even at an "inflated" price) along with the cost of maintenance, property taxes, assessments, etc. then go ahead and do it. Best case scenario, real estate values continue to rise and you’re glad you made the move. Worst case, there’s a 2008-style crash and you and millions of other voters get government bailouts.
If you’re happy in your current situation, that’s great too!
If you’re happy in your current situation, that’s great too!
No one got government bailouts during the 2008 crash. People had their houses foreclosed on and the big boys got the bailouts, not regular folks. What on earth are you referring to?
> Worst case, there’s a 2008-style crash and you and millions of other voters get government bailouts.
I don't think individual mortgage holders, as a class, got government bailouts during the GFC. The closest thing I can think of is the Troubled Asset Relief Program which, to my understanding, largely benefited the banks themselves (by allowing them to offload toxic assets). Am I missing something?
I don't think individual mortgage holders, as a class, got government bailouts during the GFC. The closest thing I can think of is the Troubled Asset Relief Program which, to my understanding, largely benefited the banks themselves (by allowing them to offload toxic assets). Am I missing something?
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Slightly different side of the coin, but in Canada – and maybe the US is the same – mortgage interest costs are what is driving inflation. Excluding mortgage interest costs, inflation has been within the target range for quite some time now. So higher interest rates are responsible for inflation in that sense.
Companies are buying houses at inflated rates with the expectation that cash will lose value due to further inflation. To me, this is the only explanation for mass-buying of homes at a premium price even when interest rates are high.
Well the other explanation is that you are better of buying than renting.
If rent prices go up faster than house prices, then you might as well buy at any price. Of course this assumes you can afford it.
If rent prices go up faster than house prices, then you might as well buy at any price. Of course this assumes you can afford it.
Interesting anecdotal examples of these people wilfully sacrificing longer term goals for short term satisfaction.
It feels like a semi-predictable outburst of the-need-for-joy following the dour years of Covid lockdowns and travel restrictions and general down-sentiment; a society-wide emotional pressure relief valve.
I can't see it playing out as any kind of long-term pattern because it's unsustainable, but having said that, there are 300 million Americans with different scales of tolerance, and so the relief valve could be steaming along for quite some time. The sustainability being how willing people are to work longer in life to pay off their debts.
What happens when an increasing number of people die with debts? Is this a likely scenario?
It feels like a semi-predictable outburst of the-need-for-joy following the dour years of Covid lockdowns and travel restrictions and general down-sentiment; a society-wide emotional pressure relief valve.
I can't see it playing out as any kind of long-term pattern because it's unsustainable, but having said that, there are 300 million Americans with different scales of tolerance, and so the relief valve could be steaming along for quite some time. The sustainability being how willing people are to work longer in life to pay off their debts.
What happens when an increasing number of people die with debts? Is this a likely scenario?
> It feels like a semi-predictable outburst of the-need-for-joy following the dour years of Covid lockdowns and travel restrictions and general down-sentiment; a society-wide emotional pressure relief valve.
According to the article, it seem more like the onset of a doomer mentality.
Why save for a tomorrow that you might not live to see? What if all your sacrifice and planning is for naught? Better to experience life now when you are healthy as you might not be in the future (e.g. long covid, dead, ...) and can no longer do so.
I think everyone subconsciously does a risk-benefit analysis. The more uncertain things are, i.e. higher risk, the more ROI you demand from your investments. If investments aren't giving you the returns you want for a certain level of risk ... you just don't invest - which is what this is about; uncertainty has reduced the attractiveness of long term investment for people and making (less risky) short term investments comparatively more attractive.
According to the article, it seem more like the onset of a doomer mentality.
Why save for a tomorrow that you might not live to see? What if all your sacrifice and planning is for naught? Better to experience life now when you are healthy as you might not be in the future (e.g. long covid, dead, ...) and can no longer do so.
I think everyone subconsciously does a risk-benefit analysis. The more uncertain things are, i.e. higher risk, the more ROI you demand from your investments. If investments aren't giving you the returns you want for a certain level of risk ... you just don't invest - which is what this is about; uncertainty has reduced the attractiveness of long term investment for people and making (less risky) short term investments comparatively more attractive.
> According to the article, it seem more like the onset of a doomer mentality.
>Why save for a tomorrow that you might not live to see?
Wanting to set a floor for quality of life for your children?
>Why save for a tomorrow that you might not live to see?
Wanting to set a floor for quality of life for your children?
Going by society's (total fucking lack of) reaction to climate change, there is only a preciously small percentage of people who care much at all for the quality of life of their children.
... which explains how we got here in the first place.
... which explains how we got here in the first place.
Presumably banks don’t give out loans to older people without any property.
If you are going to sell your house to go on vacations… I don’t think too many people will do that. Say you sell at 40 … well you still have a lot of mortgage left so the bank gets their part and maybe you get like 50k profit which is not debt.
If you sell your home when you’re older, it’s your money so no debt either.
Banks only give out so much credit card debt without collateral. Presumably somebody did the math with how much they are willing to lose.
If you are going to sell your house to go on vacations… I don’t think too many people will do that. Say you sell at 40 … well you still have a lot of mortgage left so the bank gets their part and maybe you get like 50k profit which is not debt.
If you sell your home when you’re older, it’s your money so no debt either.
Banks only give out so much credit card debt without collateral. Presumably somebody did the math with how much they are willing to lose.
Summary: Americans are spending a lot of money on vacations and fun experiences that they might've otherwise put off, because they are prioritizing to enjoy life now than later.
Inflated housing prices made savings almost pointless and COVID crisis taught them about fragility of life.
Inflated housing prices made savings almost pointless and COVID crisis taught them about fragility of life.
So because housing is expensive, Americans are making even poorer choices by saving less for them? Make it make sense.
Simple: housing affordability is racing out of reach at an accelerating rate. There is no future where the savings lift them into the landowning class, so they decide to not be as miserable as they could be if they futilely saved for something that would never happen.
Exactly. My partner and I live in a big city and both make north of $80K, but there's no reality in which we can purchase a house when offers are coming in 10% above asking/waiving all inspections/all cash/etc. So we are choosing to put that house fund towards having an actual wedding (instead of a courthouse one like we originally planned), traveling, and putting a small amount back for emergencies.
houses aren't the only thing in the equation.
Well what do you expect? Life is a game of incentives. When your savings devalue 40% a decade you can't save money. When a politician talks about "stimulating the economy" what they're talking about getting people to blow their money. When they then go on to talk about how the average american can't cover an emergency expense of a thousand dollars, remind them who's fault that is. Money velocity comes at the expense of savings.
We aren't buying more stuff, stuff is just more expensive.
>Americans spent 5.8% more in August than a year earlier, well outstripping less than 4% inflation.
Emphasis mine
Emphasis mine
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there is no tomorrow
I know this is curt, but it's the first thing that came to my mind as well. There's a threshold of what I can only describe as mundane misery past which it is very difficult psychologically and logistically to plan long-term, and tons of people are past that line. It is not a financial line.
The majority instinct is to blame those people as personally irresponsible. But that is always unrealistic at scale. This problem in particular has progressed beyond easy answers at this point.
The majority instinct is to blame those people as personally irresponsible. But that is always unrealistic at scale. This problem in particular has progressed beyond easy answers at this point.
Somewhat analogous to the "if you owe the bank $10,000 then you've got a problem" but "if you owe the bank $1,000,000 then the bank's got a problem".
If an unsustainable percentage of the population is beyond your mundane misery line then it's society's problem.
If an unsustainable percentage of the population is beyond your mundane misery line then it's society's problem.
I had a roommate back in the 90s that spent and managed his money like a drunk sailor. Dude had tons of debt. He didn't seem to care, though. He was happy as could be, while I was stressing to pay off college loans and save every nickel I earned. I discussed his situation with him once, thinking he was just too stupid to understand. He told me his philosophy was to get what you wanted when you can because "tomorrow is not guaranteed". I still thought he was living irresponsibly, so I pressed further. Then he got really serious, told me that his older brother was his hero growing up; he was a super nice guy that everyone loved and knew he was going places in life. His brother got killed by a drunk driver on prom night (the driver's prom). I sorta understood after that.
Oh there is and it is coming.
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I was in the market to buy a house during like... 2019-2021. What "was supposed to be" say... a $450k 3/2 house became $540k during "the COVID pandemic housing gold rush" when rates were 3.25% with everybody bored, willing to have a bidding war (low supply, high demand... how all of these families were able to afford what felt like $200k inflated prices, I guess because of the "funny money" equity inflation in their house and they just rolled it over?)
(Unrelated but Zillow says at 7.5% interest rates that house is now $750k+, weird... makes no sense... counter-intuitive, except for how tight the supply/demand situation must be)
Long story short... I never made that move. I kept renting. Probably "below my means". Then I put a bunch of money into a money market fund that yields 5%.
So... the Fed is raising rates to 5% to try and slow inflation. But now I'm earning 5% on a bunch of money to the point that it basically offsets my rent.
So now I have more money to spend/am less financially "tight"...
doesn't that contribute to inflation? me having an "oversupply" of money will increase my demand for... travel, frivolous purchases (which was the original problem when business owners got more than what they needed influx wise with PPP loans, or consumers getting "covid relief" and then spending it on things that trickled up to business owners, etc.)