Americans Are Living Paychecks To (Five) Paychecks

How long would your savings last if you lost your job?

If the answer is five weeks, you’re just about average, according to a calculation by Ernie Tedeschi, former chief economist for the White House’s Council of Economic Advisors. Tedeschi analyzed data from the Federal Reserve’s Survey of Consumer Finances to shed light on how common it is for Americans to live paycheck-to-paycheck, with their incomes barely covering their expenses and posted his findings on social media website X Sunday.

Despite the high number of people who report living on a financial knife’s edge—one recent survey showed 78% were a late paycheck away from financial hardship—the hard data shows Americans, on average, are building bigger cash cushions than ever before.

Refinancing Mortgages Has Become Nearly Unheard Of

With mortgage rates at or near multi-decade highs over the last year, home loan refinancing has gone nearly extinct.

Fewer people applied for home loan refinancing over the last year as of February than at any time since at least 2013, data from the Federal Reserve Bank of New York released Monday showed. The refinancing application rate fell to 1% from 3% in October, and well below the peak of 27% reached in June 2021 according to the Survey of Consumer Expectations credit access survey, which is conducted three times each year.

Mortgage rates surged in 2023, pushed up by the Federal Reserve’s campaign of anti-inflation interest rate hikes. The average rate offered for a 30-year mortgage peaked at 7.79% in October, the highest since 2000, according to Freddie Mac. Since then, it’s fallen to 6.74% as of last week.

Since it makes little financial sense for borrowers to take out a higher-interest home loan than the one they currently have, it’s not a very appealing option at the moment. The Mortgage Bankers Association, which collects its own data on home loan applications, has also noted the dearth of refinancing activity.

“We expect that most of this activity reflects borrowers who took out a loan at or near the peak of rates in the past two years,” Mike Fratantoni, chief economist at the association, said in a press release. 

Homebuilder Outlook Brightens Despite High Mortgage Rates

Homes are less affordable than almost any time in history, but homebuilders are growing more confident that there are still plenty of potential buyers.

The National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index (HMI), a measure of how builders feel about the market, rose in March to its highest since July, the association said Monday. The index, which goes from 0 to 100, rose to 51 from 48 the month before, crossing the “breakeven” point that indicates sentiment is generally positive. It was the fourth month in a row the index rose.

The uptick surprised forecasters, who had on average expected it to remain flat at 48, according to a survey of economists by Dow Jones Newswires and the Wall Street Journal.

The overall housing market has been plagued by affordability problems amid high mortgage rates and home prices. The median earner would have to shell out more than 41% of their income for a mortgage on a typical home in December, close to the highest percentage on record according to the Federal Reserve Bank of Atlanta.

Homebuyers are finding slim for-sale listings among existing homes because many owners are locked into low-rate mortgages and don’t want to sell. That lock-in effect, combined with a recent downtick in mortgage rates, is supporting demand for newly constructed homes, NAHB chairman Carl Harris said in a press release.

The survey results echoed comments by builders in recent earnings calls. 

“The general theme remains primarily focused around very strong demand for housing, limited by the chronic housing shortage that is particularly problematic for working-class families and their ability to find affordable or attainable supply,” Stuart Miller, CEO of Lennar, said in an earnings call last week. “Demand for that product remains robust if it can be built at an attainable price point.”

New York Area Business Activity Stays Steady in March

Business activity in the New York and Northern New Jersey area stabilized in March, reversing months of decline, while wages slowed and capital spending was flat. 

The New York Federal Reserve March 2024 Business Leaders Survey index moved higher by eight points to hit 0.6, the first time in six months that the index has moved higher. The business climate index dropped two points to -26.4, which the report said suggested business conditions remain "worse than normal.”

“Business activity held steady in the New York-Northern New Jersey service sector in March, marking the first time in several months that activity didn’t decline,” said Richard Deitz, economic research adviser at the New York Fed.  “Employment and capital spending were flat, while firms were fairly optimistic about the future business climate.”

The survey of firms in the region found that 30% of respondents reported business conditions had improved over the month while another 30% said conditions had worsened. Capital spending during the month was flat. 

Business leaders in the region reported that their prices paid rose five points, while the prices received index moved higher by three points.  A three-point decline in the wages index showed wage increases slowed slightly during the month, while the employment level was little changed, the report showed. 

The report follows last week’s Empire State Manufacturing Survey, which showed that manufacturing activity in the region dropped significantly in March. While the regional reports only cover a small area, they can give insight into the movements of the broader economy.

-Terry Lane