Well,
all those Millennials are a few weeks older than when the commentary last
discussed them. I don't have any trophies to hand them, but Realtors and
lenders sure hope they pair up, form households, and "bear fruit."
And I even have a joke about them down below. They are certainly the most
talked about group in quite some time, and in fact I regularly receive e-mails
suggesting they don't need more attention. But I collected some recent news
about them, with some of the information even conflicting....
While
some data indicates that Millennials are starting to engage in home-buying
activities, the Collingwood Group reports that the Millennial housing problem
is not going away. As young adults begin to move out of their parents' homes,
they are initially looking to rent rather than buy. According to the
Collingwood's Mortgage Industry Outlook Report, 61 percent of respondents
claimed to have not seen any evidence of new volume from the millennial
generation. The usual suspects, high debt burden and low wage growth, are the
primary reasons for delaying homeownership. Millennials are also delaying
household formation, pushing the need to buy to later in life. Most of the
respondents agreed that this generation will become homeowners in the near
future. To read the report, click here.
Homeownership
among young adults has dropped to 36.8%, from its peak of 43.1% in 2004. As
such, more Millennials are living at home and renting with friends to offset
the cost of living expenses. In a 2013 survey by Fannie Mae, 19% of adults aged
18 to 38 years old said one of the main reasons for renting was due to its
flexibility and 23% of the same cohort said the number one reason for renting
was affordability, with 26% stating that they were not ready to financially own
a home and 8% noted that they could not obtain a mortgage. As most analysts
have pointed out, student debt has bogged down young adults, delaying their
ability to partake in homeownership activities. According to a Wells Fargo
survey, the second biggest financial priority among Millennials is to purchase
a home, only behind paying off debt. Apart from debt hindering some young
adults form purchasing a home, Millennials are also delaying marriage, but
homeownership rates often converge by the age of 35 to 39 years old. About 90
percent of young adults currently renting do want to buy a home at some point,
but more often than not, Millennials will engage in homeownership later in
their lives. To read more about Wells Fargo article, click here.
In
line with most predictions, a millennial housing boom is coming. Tim Rood,
chairman of the Collingwood Group has reaffirmed this expectation,
suggesting that the size of the job market is supposed to peak in number of
employees by 2016, and then drop off, as more people begin to retire and leave
the job market. This will allow for a higher earning potential and greater employment
opportunities among Millennials. Baby boomers are also beginning to retire in
cities at higher rates, where Millennials currently reside. As more and more
Millennials begin to settle down and raise a family (an amount that should
increase by the end of the decade), they will move away from the city,
ultimately swapping living environments with baby boomers. The rise in earning
power for Millennials and their desire to settle down within the next few years
will make Millennials the largest share of homebuyers in the near future.
Not
all Millennials are struggling, as the mean net worth among Millennials is much
higher than the median, indicating that a portion of young adults have a fairly
robust balance sheet, according to Wells Fargo. Despite this, the decline in
employment opportunities and earning potential among Millennials after the
recession has led to an overall drop in assets among this generation. The
median value of assets dropped from $38,200 in 2010 to $29,600 in 2013 and
nonfinancial assets are more prevalent among young adults than financial
assets. Among nonfinancial assets, Millennials are less likely to invest in
real estate and business equity than any older cohort, as 35.6% of Millennials
(a 2013 all-time low) owned a home and 6.5% of young adults had equity in
businesses compared to 11.7% for all households. Millennials are also less
likely to own a car and obtain a driver's license - perhaps Millennials are in
fact, more granola than their older counterparts. Compared to all households,
young adults are only marginally less likely to hold financial assets, but the
median asset value is $5,800 for Millennials, compared to $21,200 for all
families. A 2013 Wells Fargo survey suggested that 60% of young people
uphold the notion that the stock market is the best place to invest, but the
inability to save money is preventing Millennials from doing so. Once the job
market picks up for this generation, more Millennials will begin to invest in
home buying, boosting the overall housing market.
The
entire Millennial generation is now of employable age, and comprises about 35%
of the U.S. working age population. Wells Fargo Securities, LLC Economics Group
defines the Millennial generation as those between 16-34 years old. Currently,
85 million people make up the Millennial cohort and it is the largest
generation in U.S. history, attributing to 30% of the U.S. population. Many
Millennials graduated from school during the economic crisis, resulting in
decreased employment opportunities and low wages. According to Wells Fargo
survey, the recession taught 80% of Millennials to save money in order to
mitigate future economic hardships, yet many Millennials are not saving for
retirement. This may be attributed to the fact those most Millennials are tied
down with debt obligations, as the survey suggested that student debt was the
main financial concern among Millennials. More Millennials (between the ages of
25-34 years old) hold at least a Bachelor's degree than the general population
aged 25 and older. The educational achievements of the Millennial generation
will ultimately lead to greater pay increases and employment opportunities,
improving their financial situation. This will have a positive impact on the
economy, as Millennials begin to engage in homeownership and investment
opportunities. To read more about Wells Fargo's article, click here.
Despite
the fact that a greater share of Millennial workers is employed in low-paying
industries, recent data indicates that Millennials should start experiencing a
rise in income growth, according to Wells Fargo Securities, LLC Economics
Group. Since 2008, median weekly earnings for full-time workers have increased
about 1.9% per year, whereas the median weekly earnings for older Millennials
(ages 25-34) have risen 1.6% per year compared to 1.5% for younger Millennials
(ages 16-24). Throughout the past year, the median weekly earnings for
younger Millennials have increased ahead of their older counterparts as younger
Millennials are working more hours. The slow wage growth for Millennials
compared to older workers can be attributed to graduating in a recession and
entering careers in a weak labor market, resulting in long-lasting negative
effects on wages. Starting salaries are often lower than the pre-recession
environment, raises are modest and there are more underemployed workers. This
wage loss can continue for around a decade. Between 2007 and 2013, younger
households' income (35 and younger), declined 14.6%, although Millennials are
only slightly behind in median income compared to all households since the
recession. For example, in 2013 the median income household income for those
aged 35 and younger was 76.1% of the median income for all households, which
has remained the same since 2004. There has been a recent surge in weekly
earnings among Millennials, but an income gap still remains between Millennials
and older workers, and is wider than prior generations. To read more about
Wells Fargo's article, click here.
According
to an article posted on LinkedIn,
Millennials are not job hopping and are more loyal now than they have ever
been. A chart published by The Washington Post indicates that Millennials have
stayed at their jobs longer than any time since 1982 and since the recession,
the average length of employment occupancy has been on the rise, with an
overall average of job tenure equaling 3.2 years. Similarly, the Bureau of
Labor Statistics also indicated that job tenure has increased, with the median
years of tenure in January of 2004 at 4 years, compared to 4.6 years in January
2014. The lack of job hopping can be attributed to the economy, as there are
fewer new jobs being created that entail higher payer and room for advancement
since more people would take those jobs leaving their current position. Since
job hopping is at a low, the ratio between wages and corporate profits has
never been higher since companies don't have to pay their employees more. As
the economy begins to improve, job hopping will increase again.
Switching
gears to the markets, in yesterday's economic news, advanced retail sales for
February was the highlight along with weekly Initial Jobless Claims and
February import prices. Feb retail prices were expected to be moderately strong
at +0.3% after falling -0.8% in January but actually fell 0.6% in February amid
rough weather. That was a huge miss by forecasters. Unemployment insurance
claims were expected to have decreased in the first week of March, and sure
enough they decreased by 36,000 to 289,000 in the week ended March 7. The
four-week moving average for claims, which evens out weekly volatility, fell by
3,750 to 302,250 last week. Lastly import prices rose .4%, rising for the first
time in eight months. Compared with one year earlier, prices were down 9.4%.
That marked the largest year-over-year decrease since September 2009.
Executive
Rate Market Report:
Treasuries and MBSs were
slightly weaker (price) prior to 8:30. Feb PPI released at 8:30, the consensus was for overall PPI to
increase 0.3% and the core (ex food and energy) +0.1%; as reported PPI dropped
0.5% and the core also down 0.5%. The initial reaction in the bond and mortgage
markets provided support, at 9:00 the 10 yr at 2.10% down 1 bp from yesterday’s
close and MBS price +15 bp from yesterday’s close. PPI has been negative now
for 4 months; Jan PPI down 0.8%, yr/yr Feb down 0.6%, yr/yr Feb core +1.0%. The
initial improvements didn’t last, by 9:15 FNMA 3.0 coupon traded down 6 bps.
Wholesale prices this
morning confirm low inflation outlooks. Much of the decline in overall prices was due to a 1.5% drop in
a volatile category called trade services, which measures changes in margins
received by wholesalers and retailers. Excluding food, energy and trade
services, the index was unchanged in February from January. Much of the last 4
month decline in PPI is due to lower energy prices that declined and a drop in
food prices, down 1.6% from January. The FOMC meeting next week will debate
whether inflation is stabilizing or will continue to decline. Yellen made
specific reference to the decline in oil prices, that oil price declines would
diminish over time. Defining ‘over time’ is another Fedspeak leaving the
definition to investors and traders to speculate. Crude is declining once again
in the last few sessions, early this morning down $1.00 to $46.08 breaking its
near term support.
Crude has regained its
influence on inflation after trading in a tight pattern since January. Even cutting production
the supply of oil is now stressing storage tanks that are almost filled to
their tops. This morning the International Energy Agency issued a report that
they are raising estimates for U.S. oil production for this year, since the
large reduction in drilling has failed to slow output. If crude prices make a
new low look for another run lower that will have some impact on what markets
expect from the Fed. Europe is failing to push up inflation, the US also unable
to engineer the inflation rate to 2.0% the Fed has been looking for since 2012.
At 9:30 the DJIA opened -50 after
+260 yesterday, NASDAQ -5 after +43 yesterday, and S&P -6 after +26. The 10
yr note at 9:30 2.12% +1 bps; 30 yr FNMA price -5 bps from yesterday’s close
and -38 bps from 9:30 yesterday.
The final data point this
week at 10:00, the U. of Michigan mid-month consumer sentiment index; expected at 96 from 95.4
at the end of Feb, as reported the index declined to 91.2.
There is an increasing
belief within markets that with employment gains recently wages are about to
increase.
Investors, economists and some traders are on board with that idea. Of course
increasing wages will increase the inflation outlook and would be a reason for
interest rates to move higher. I don’t have an opinion, however we worry that
since the financial collapse in 2008 making assumptions based on historical
data hasn’t worked very well. If wage pressures were to increase as is the
current thought, businesses will immediately begin cutting back on hiring. The
absolutely most important thing for businesses that trade publically is keeping
profits up and expenses down, that may derail the bullish employment outlook.
The FOMC has to think about it when deciding whether or not to start increasing
interest rates. Not sure why, but markets believe that when the Fed increases
the FF rate it will mean a constant increase at future FOMC meetings. If the
Fed raises the FF rate one time by 0.25% (which we believe is the max we will
see) then sits tight for months the initial increase won’t have any significant
impact on markets.
Next week’s FOMC meeting
and Yellen’s press conference after the meeting should keep financial markets in narrow ranges
today and early next week. The dollar is increasing, not good for US economic
outlooks. Crude is about to re-gain selling after a few weeks of consolidation,
good for the rate markets. All that said, the bond and mortgage markets haven’t
changed; both markets remain bearish. Not quite as technically bearish as was
the case last week; testing key technical levels.
PRICES @ 10:10 AM
10 yr note: -1/32 (3 bp)
2.12% unch
5 yr note: +1/32 (3 bp)
1.59% unch
2 Yr note: +1/32 (3 bp)
0.65% -1 bp
30 yr bond: -4/32 (12 bp)
2.71% +0.5 bp
Libor Rates: 1 mo 0.176%;
3 mo 0.269%; 6 mo 0.401%; 1 yr 0.715%
30 yr FNMA 3.0 Apr: @9:30
101.06 -5 bp (-38 bp frm 9:30 yesterday)
15 yr FNMA 3.0 Apr: @9:30
104.44 -13 bp (-14 bp frm 9:30 yesterday)
30 yr GNMA 3.0 Apr: @9:30
102.27 -3 bp (-25 bp frm 9:30 yesterday)
Dollar/Yen: 121.43 +0.14
yen
Dollar/Euro: $1.0518
-$0.0117
Gold: $1156.80 +$4.90
Crude Oil: $46.11 -$0.94
DJIA: 17,758.17 -137.05
NASDAQ: 4878.25 -15.04
S&P 500: 2054.07
-11.88
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