Economic Myth Busting-
Myth – 60% of Americans are living paycheck to paycheck – in fact the median American household has a net worth of $193,000, while much of this is often tied up in housing and retirement accounts the median household has $8,000 in checking and savings. As of 2022 the poverty rate was at 12% (certainly way to high) but a different problem than 60% of Americans not making ends meet.
Myth – The US trade deficit is causing us to transfer our wealth to other countries. The US has had a trade deficit since the 1970s and used that deficit to invest/spend and grow our economy, pay off the debt, and borrower more (rinse and repeat). The US dollar continues to remain strong which allows us to borrower in our own currency and gives confidence to foreign investors to continue to invest in and lend to us.
Myth – taxing the top 1% earners can solve the government budget deficit. Taxing the top 1% would yield 1-2% of annual GDP in additional tax revenue but the deficit is 6% GDP in growing. While it would help reduce the deficit it’s not a silver bullet. European countries solve this problem with a Value Added Tax (VAT). The US doesn’t use VAT but it is essentially a consumption tax that is an indirect sales tax.
Mortgage Rates improved slightly as the price of Mortgaged Backed Securities improved nicely early in the week only to give back most of the gains on Friday with the release of the jobs report. Rates are up approximately 0.25% from this time last year.
Jobs – the 272,000 jobs created in May was much stronger than estimates of 185,000 which caused a selloff of mortgaged backed securities. Of these jobs, 231,000 came from the Birth/Death model (this looks at the number of opened and closed small businesses and estimating job creations/losses based solely on the number of births/deaths – highly unreliable). Average weekly earnings rose 0.4% and have now declined from a 3.9% to a 3.8% increase year over year. The headline unemployment figure rose from 3.9% to 4%.
Global Banking – the European Central Bank (ECB) cut rates this week by 0.25% but the market did not love it because they did not commit to future cuts. Here are countries that have started to ease and cut rates: Canada, Sweden, Switzerland, Hungary and the Czech Republic.
Home Values – Core Logic released their home price index and it showed home values rose a whopping 1.1% in April after a 1.2% rise in March, demonstrating continued strength in home values. Home prices are up 5.3% year over year and are forecasted to rise 3.4% over the following year.
Mortgage Applications to purchase homes decreased 4% last week and are down 16% year over year. Refinances declined 7% and are up 5% from this time last year.