The U.S. economy is expanding, fueled by a renewed consumer optimism and increased consumer spending.
As reported by the Census Bureau, the retail sales increase for February 2012, excluding cars and auto parts, was 1 percent to $335 billion as 11 of 13 retail sectors showed improvement last month.
February markets the 19th time in twenty months that U.S. Retail Sales increased on a month-over-month basis.
The connection between Retail Sales and home affordability is indirect, but noteworthy — especially given today’s broader market conditions.
Last week, the National Association of REALTORS® released its monthly Housing Affordability Index, showing that homes are more affordable to everyday home buyers than at any time in recorded history. For buyers with median earnings buying median-priced homes, monthly payments now comprise just 12.1% of the monthly household income.
The real estate trade group considers 25% to be the benchmark for home affordability. Today’s payment levels are less than half of that.
Reasons why today’s homes are so affordable are three-fold:
- Home prices remain relatively low as compared to peak pricing.
- Fixed- and adjustable-rate mortgage rates remain near record lows.
- Average earnings are increasing nationwide.
Rising Retail Sales, however, can derail the trend. This is because Retail Sales measures consumer spending and consumer spending accounts for roughly 70 percent of the U.S. economy. As the economy expands, the forces that combined to raise home affordability so high begin to wane.
First, in a recovering economy, mortgage rates tend to rise and, throughout 2012 and 2013, home prices are expected do the same. Second, as average earnings increase, it can spur inflation which is bad for Seattle mortgage rates as well.
Home affordability is at all-time highs today. But, in part because of February’s Retail Sales data, we should not expect these levels to last. Mortgage rates are higher by 1/4 percent since the Retail Sales data was released — roughly $16 per $100,000 borrowed — and are expected to rise more throughout the spring home purchase season.
Have questions? Sammamish Mortgage is a local, family-owned company based in Bellevue, Washington. We serve the entire state, as well as the broader Pacific Northwest region. Please contact us if you have mortgage-related questions.