What Doesn’t Stink? Pluto and Mortgage Rate Hikes
Another picture of Pluto has been released pic.twitter.com/JNWCjpmprP — Darth Vader (@DepressedDarth) July 15, 2015 
Something so far away named by an 11-year-old  is now here in vivid detail..Pluto.
I drew a comparison reading the recent Randall Forsyth column in Barrons (sorry, subscription) discussion on raising interest rates  by Federal Reserve Chair Janet Yellin before the House Financial Services Committee.
“I would say … our economy is in a much better state. Low interest rates have facilitated it, and a decision on our part to raise rates will say, ‘No, the economy doesn’t stink.’ We’re close to where we want to be, and we now think the economy can not only tolerate but needs higher rates.”
The use of the phrase “doesn’t stink” by a Fed Chair is amazingly refreshing. Yet what makes the economy feels like it stinks to so many? The lack of wage growth . And to drive the point home, wage growth has been stagnant for a while  and hasn’t looked so hot this year . Here’s another good read on the topic from The Economist: Why American wage growth is so lousy  (sorry, registration)
Skipping past the housing bubble era when access to credit bridged the affordability gap between housing prices and wages. Simply using common sense  tells us that wages need to keep up with rising housing prices or the housing economy suffers an affordability crisis (that’s what we are in now).
The futures market projections for the federal funds rate, which influences mortgage rate trends are here (and seem optimistic):
But I’m betting (not literally) on early-to-mid 2016 for a nominal rate hike, knowing that my methodology (I have none) stinks. And hopefully the rate hike will be for the right reasons, that the economy is truly better, that there is wage growth, improving household formation and fewer people are falling off the employment rolls. The Fed has promised to be data driven for their decision when the rate hike will occur.
But following the Fed to decide whether you should take out a mortgage stinks. There is a fantastic commonsensical article on this topic by Neil Irwin in the New York Time’s Upshot :
For most people, trying to parse the intentions of the Fed should play nearly no role in a decision of when to take out a mortgage or other loan. You should make your borrowing decisions based on current market rates and whether they make a given home purchase or refinancing decision affordable or not. Assume that neither you, nor your mortgage broker, nor your Uncle Ned, who watches a lot of Wall Street sharpies on CNBC, has any predictive capacity to know whether rates will be higher or lower a month from now.
And with rising housing prices (because of tight credit constraining supply) we’re even talking about raising jumbo mortgage limits  in the not too distant future.
What Also Stinks
To that point, the housing economy is full of surveys , surveys  and more surveys  that are one step below a wild guess. The reliability of easy PR-driven housing surveys , for lack of a better word, stink. It’s not much better for economic models  either.
And while I’m on a role here…as it relates to the affordability crisis…do you know what else stinks? Malls. Only go to them when absolutely necessary. But malls could be making a comeback . One of the side affects of the overwhelming success of the new urbanism  movement aka walkable cities has been rapidly rising prices in many cities. They are making the suburbs look a lot more affordable these days, and perhaps malls will be a beneficiary.
South Florida Housing: From Frantic to Brisk
In case you missed it, Douglas Elliman  published our research on the South Florida housing market for the second quarter. The general takeaway from the 5 markets: Miami Beach , Miami Mainland , Boca Raton , Fort Lauderdale  and Palm Beach , was the shift in pace from frantic to brisk  which is ultimately more sustainable. Inventory is a key variable and Palm Beach  is the most constrained. Here’s a brief recap  I wrote for Curbed Miami. Let me clarify. These markets don’t stink.
Before I run out of ways to incorporate “stink” into this note, I’d better end it now or this Housing Note will really stink. Incidentally, there’s no “stink” in space and should not be confused with being inside the spaceship .
See you next week.
Jonathan Miller, CRP, CRE
Miller Samuel Inc. 
Real Estate Appraisers & Consultants
ps Please feel free to share. If you get tired of all the charts, real estate commentary and articles presented in each weekly note, just opt out. I always appreciate feedback so please email me .
- Growing inventory slows sales in Miami: Douglas Elliman [The Real Deal South Florida] 
- Early summer busy for Palm Beach real estate sale closings [Palm Beach Daily News] 
- On Surveys [Medium] 
- Thomas Piketty explains the meaning of economic models, and why we can’t rely on them [Quartz] 
- Yellen: ‘Economy Doesn’t Stink,’ so Hike Rates [Barron’s] 
- Why people still feel the economy stinks [CNN/Money] 
- Cannabis Construction: Entrepreneurs Using Hemp for Home-Building [New York Times] 
- Thinking About Taking Out a Mortgage? Don’t Obsess Over the Fed [The Upshot/New York Times] 
- The Mall Rises Again by Michael Hendrix [City Journal] 
- Shadow Lenders Are Pushing Into Risky Real Estate Deals [Bloomberg Business] 
- It’s Going to Be a Long, Slow Trip Higher for U.S. Interest Rates [Bloomberg Business] 
- Uber uses its app to attack New York City Mayor [Crain’s New York Business] 
- Mortgage Limits May Increase [WSJ] 
- The Chinese economy: Whether to believe China’s GDP figures [The Economist] 
- How a precocious 11-year-old girl gave Pluto its name [Washington Post] 
- The Economist explains: Why American wage growth is so lousy [The Economist] 
New Content & Research
- The Miami Market’s Unsustainable Boom has Ended [Curbed Miami] 
- Palm Beach Sales 2Q 2015 [Miller Samuel/Douglas Elliman] 
- Fort Lauderdale Sales 2Q 2015 [Miller Samuel/Douglas Elliman] 
- Boca Raton Sales 2Q 2015 [Miller Samuel/Douglas Elliman] 
- Miami Coastal Mainland Sales 2Q 2015 [Miller Samuel/Douglas Elliman] 
- Miami Beach + Barrier Islands Sales 2Q 2015 [Miller Samuel/Douglas Elliman]