Afford Anything - First Friday: We Were Wrong About 258,000 Jobs (This Changes Everything)

Episode Date: August 1, 2025

#630: Interesting observations about the current housing market, meme stocks (again), GDP, Fed Meeting, Stock Market, and the latest Jobs Report updates. Timestamps: Note: Timestamps will vary on individual listening devices based on dynamic advertising run times. The provided timestamps are approximate and may be several minutes off due to changing ad lengths. 00:00 Introduction to Economic Turmoil 01:21 Jobs Report According to the BLS 09:23 Impact of Tariff Negotiations 12:36 The Broader Trade Landscape 16:04 Stock Market Reactions 24:11 GDP and Inflation Insights 31:52 The Fed’s Steady Hand (Interest Rates) 39:55 Housing Market Dynamics 39:40 Affordability Crisis in Real Estate 50:23 The Return of Meme Stocks Resource mentioned: Spencer Jakab on The GameStop Revolution For more information, visit the show notes at https://affordanything.com/episode630 Learn more about your ad choices. Visit podcastchoices.com/adchoices

Today's Friday, August 1st. It's the deadline to set trade deals for tariffs and the markets are in turmoil. On top of that, we have a new jobs report and the Fed met earlier this week two days ago. And we have new GDP report numbers. Plus, we have the latest inflation data from the PCE index, the personal consumption expenditures index. We've got a lot to cover. By the way, everything that I've just named happened in the last 48 hours. Everything. The PCE numbers, the GDP numbers, the jobs report. Today, the tariffs went out. Today, the latest. Department put out the jobs report. Significant amount of it is happening literally today. Woo, buckle up. We got a lot to cover. Welcome to the Afford Anything podcast, the show that knows you can afford anything, not everything. We are a twice a week show. Typically on Tuesdays, I answer questions from you, and on Fridays we normally interview a guest, but there's one exception, and that is the first Friday of the month. Every month on the first Friday, we pause

our typical Q&A interview cadence. And instead, take a look at the big, broader macroeconomic sphere. What's happening in our economy? What is the data show? Where are we headed? Those are the questions we answer on the first Friday of every month. And so welcome to the August 2025 first Friday economic update. Let's start with a jobs report.

In the month of July, the U.S. gained 73,000 new jobs. According to the BLS, quote, employment changed little in July. Again, with a gain of only 73,000 new jobs. And, quote, has shown little change since April. So jobs are holding steady, according to BLS data. The unemployment rate is also holding steady at 4.2%. It's been very stable at that rate for years now. The thing that's shocking about the jobs report are the revised jobs numbers.

So it isn't the jobs numbers from July. that are particularly noteworthy, it's the revisions from May and June. As it turns out, we added 258,000 fewer jobs than we thought we did. So according to the revised numbers, the U.S. added only 19,000 new jobs in May as compared to an initial report of 144,000. We added only 14,000 new jobs in June as compared to an initial report of 147,000. And so if we, we, take the July numbers at face value, because that's the best we know right now, even though it's standard practice that numbers are revised. And by the way, revisions happen in both directions. Revisions happen up and down. But May and June just got revised down in a big, big way.

So if we take the revised May and June numbers and we add it to the July numbers, that means that over the last three months, the U.S. has added only 106,000 new jobs. That's actually shocking. Let me put those numbers into context, we thought that in the month of May alone, just the month of May alone, we thought that we added 144,000 new jobs. In fact, now that we have revised numbers, assuming that we believe the July numbers, assuming we take those at face value, we added fewer jobs over the last three months than we thought we added in just the month of May. And by the way, I'm not singling out the month of May. You could say the same thing about the month of June, right?

We thought that we added 144,000 jobs in May. We added 19,000. We were off by a factor of most of the jobs. And the same thing is true of June. We thought we added 147,000 jobs in June. We only added 14,000 new jobs. We were off by a factor of most of the jobs. Once again, the revisions really shake up.

what we thought we knew about the labor market. We are starting to see more data around federal government job losses. Remember, if someone in the federal government was let go, but they are still collecting severance, those numbers don't show up in the jobs report. Those don't qualify as job losses until the severance runs out. And so back in March, April, May, we actually were not technically seeing a lot of job losses in the federal government sector. Now that's starting to pick up.

And if you go back and listen to the first Friday episodes that I recorded back in March, April, May, I talked about how it's going to be later in the year, probably around the fall, probably around August, September, October, when we're really going to start to see what those numbers actually look like. We're beginning to see it right now. As of July, federal government employment declined by 12,000 jobs, and it's down by a total of 84,000 jobs since its January peak. And again, I'm going to emphasize employees that are on paid leave or employees that are receiving severance are still counted as employed. So we'll need to wait a few more months to get better numbers on that. Now, as usual, the health care sector is where the jobs are.

Healthcare added 55,000 jobs in the month of July. That's more than what it usually does. Its average monthly gain is 42,000 jobs per month over the past 12 months. Social assistance employment also ticked up in July. That's a continuation of a long-time trend that we've seen, so social assistance employment grew by another 18,000 jobs. Meanwhile, a whole bunch of sectors, including mining, quarrying, oil and gas, construction, manufacturing, wholesale trade, retail trade, transportation, warehousing, information, financial activities, professional and business services, leisure and hospitality, all of those sectors remained flat. Labor force participation is also holding steady, although it's down half a percentage point from where it was a year ago. But on a month-over-month basis, it's holding steady.

So zooming out big picture, we're essentially seeing a lot of flatlining, with the exception of health care. They're doing great. That's all according to BLS data, but we get a different picture when we look at the ADP report. All right, so some background. If you missed last month's first Friday episode, here's the deal. The BLS, the Bureau of Labor Statistics, they take a view of the entire employment landscape, both private and public. By contrast, ADP, which is a payroll processor, they have a bunch of data only on private employment, the private sector. They don't see any public sector data.

And so they both put out employment reports every month and every month. is sometimes they're the same, but lately last month, if you remember last month's first Friday, last month they were really different. And sometimes seeing the differences between the two reports. So what does the job situation look like when we're looking only at the private sector versus what does the job situation look like when we're looking at both? And obviously there are two different groups with different data sets and different methodologies, right? So by virtue of having these two very different types of jobs reports. We get a fuller picture, a fuller example. All right, so the ADP report is also out for the month of July. They spotted more jobs than the BLS's reporting. They say private

sector employment is up by 104,000 jobs in July. And they actually saw growth in both service providing and goods producing companies, although service providers led the way a bit more. So financial activities had some of the biggest growth. Trade transportation, you'd again, in the private sector had some of the biggest growth. Construction did well. Leisure and hospitality did well with the addition in leisure and hospitality of 46,000 new jobs. And in their report, they lump education and health services together into one category, and they saw a decline there of 38,000 jobs.

If we parse the data, I would bet that would largely come from education. So the ADP report, which is produced by looking at weekly payroll data from 25 million private sector employees in the U.S. That report paints a rosier picture. It shows many of these sectors having more growth than the BLS report would otherwise indicate. But there is one big area of concern, and that's when you look at how this breaks out between small and large companies. Medium-sized businesses, which have anywhere between 50 to 50 to 40. 500 employees showed good growth, 46,000 new jobs in the last month. Large companies, which

are 500 employees or more, also great growth, 46,000 jobs. But small companies with fewer than 50 employees, those small businesses are where we really saw the lag. And that reflects ADP's data from the month of June as well. Some of the economic pressures that we're seeing right now seem to be disproportionately affecting small businesses, defined as any company with fewer than 50 employees. Overall, the picture, I mean, if we look at both reports together, we're seeing a picture of an economy that's resilient. Consumers are still spending. Unemployment is low. Labor force participation is steady. Wages are growing. But there are nuances between the two reports, particularly around small business, where we see what some of those weak points are.

and where there's trouble in the system. Today was the negotiation deadline for tariffs. Many countries did reach deals prior to today. South Korea, for example, reached a trade deal yesterday that gave them 15% tariffs down from the 25% that was originally looming. They'll also be investing $350 billion in U.S. projects, and they'll be buying $100 billion worth of U.S. energy products. The deal with South Korea is particularly notable because they're one of the U.S. U.S.'s. top 10 trading partners. The U.S. of course, has many troops stationed in South Korea.

They are a key Asian ally. But there are other countries in Asia and elsewhere that did not manage to make deals prior to today, including India. And so a 25% tariff on India will be going into effect today unless they reach a deal like later this afternoon. As of early Friday morning, no deal has been made with India. Those trade talks are still under negotiation. That's as of 9 a.m. Eastern on Friday.

Meanwhile, Brazil is facing 50% tariffs. 50-0, so that's the highest of anything. That does, I should note, exclude some of Brazil's key exports, so it excludes orange juice, energy products, and commercial aircrafts. It does not exclude things like coffee or beef, which we import a lot from Brazil. So there is a reasonable chance that we might start seeing higher prices on those products.

I mentioned in a previous First Friday episode that President Trump had also threatened 50% tariffs on Lesotho. They are the country with the biggest trade imbalance with the U.S. That has ended up being a 15% tariff. Meanwhile, with China, one of the tricky things that the administration has had to navigate is that China often bypasses tariffs and other measures by setting up warehouses and factories in other countries.

So China will frequently route their goods through Vietnam, through Mexico, through a variety of Southeast Asian countries in order to bypass U.S. tariffs. Yesterday, President Trump decided to take aim at those indirect imports by imposing 40% tariffs on those types of imports. He refers to them as transshipments. those are set to go into effect in a week. Zooming out and looking more broadly, with today being the deal deadline,

most of the deals that have been reached, the countries with whom we are now trading at a negotiated deal rate, are predominantly countries in Europe or in East Asia slash Southeast Asia. So we are trading at a deal rate with Britain, with the EU, with Japan, South Korea, Vietnam, the Philippines, Indonesia. We've cut deals with all of them. Meanwhile, we have new tariff rates imposed on a huge

variety of major trading partners. Canada has a 35% new rate. India, as we already discussed, has 25%. Some of the deals that have been made, you know, Taiwan, Sri Lanka, Vietnam, they're going to see tariffs of 20%. And then there are a number of countries that are only going to face the standard 10% baseline rate. So Peru. Morocco, Egypt, Ukraine, Singapore, they'll all face the standard 10% baseline rate. I say baseline, but that's our baseline for everywhere in the world with the exception of China. China has a baseline of 30% based on an agreement that we reached in May, but the deadline for that is August 12th, by which time we have to either come to a new deal or extend that deadline.

And all of this is on top of industry-specific tariffs, which include 50% on steel, aluminum, and copper parts, and then 25% on autos and auto parts. Meanwhile, there are a handful of other industries, lumber, pharmaceutical, semiconductors that are likely to see industry-specific tariffs, but they haven't been determined yet. It's notable the number of deals that have not yet been reached, particularly given Given that many of those deals are with our biggest trading partners, we have not reached deals with Canada or Mexico. Mexico, there's an additional 90-day pause for us to negotiate that. With Canada, their new rate of 35% goes into effect immediately.

That's notable because trade is two-thirds of economic activity in both Canada and Mexico. And so there is a chance that the trade war with Canada could trigger a recession in Canada. Now, as for what impact all of this is going to have on the U.S. economy, that remains to be seen. If prices of goods go higher, that might slow down consumer spending, and consumer spending is the massive driver of the U.S. economy. The goal of the tariffs is, of course, to reduce our trade deficit with other nations, as well as to re-onsure some manufacturing. All of that remains to be seen.

Historically, it's taken one or two years. In past instances, when we've imposed tariffs, it's taken one or two years for the effects to really trickle through the supply chains and then play out in meaningful ways. When you're working at such scale with such big economic data, imagine trying to steer a massive cargo ship. The turn is slow. And yes, it's true that even slight degrees, a one degree difference over time completely changes the trajectory. But in the short term, that term is slow, nearly imperceptible. And so that's very much like how some of these trade deals play out in the ripple effects.

as they reverberate across sectors. Six months from now, with hindsight, we'll be able to look back on today and say, hey, remember those tariffs that went into effect on August 1st? This is how the economic effects played out from that point forward. But in the moment,

there's a lot of uncertainty and there's a lot of speculation. And that actually leads perfectly into our next segment the stock market. Because the stock market in the short term is a voting machine and in the long term is a weighing machine. And so what I just talked about, weighing

the economic effects, that's the long term. That's the actually stepping on the scale and taking the weight. But in the short term, on a day-to-day fluctuation level, the stock market is a voting machine, reflective of hopes, fears, anxieties, aspirations. On a day-to-day basis, the stock market reflects that, those emotions, and that's special. speculation, the volatility, the daily volatility of the market reflects the straw pole rather than the scale weight. And so today, the markets are not doing that well. I recommend you don't take a look at your 401k, at least as a Friday morning. By the time you listen to this, who knows how it might change. But as a Friday morning, stocks are down. The S&P 500 is down about one and a half percentage points. Treasury yields have fallen to their lowest rate since last August.

That means prices are up. But stocks are down, treasury yields are down, and the dollar sank. Oh, and the VIX, which is like the fear, a measure of fear on Wall Street, the VIX is up. I should note part of why the dollar sank is because the markets, especially in the context of the weak jobs report, the markets are now pricing in two rate cuts this year, which is good news for anybody who wants to buy a house. Or anybody who's selling a house, really, because if you're selling a house right now, Now, you're not finding many buyers on the market because of the fact that interest rates are high. Based on the weak jobs data, the markets are now pricing in two rate cuts for the remainder of 2025,

which means, and technically rate cuts do not determine mortgage interest rates. I want to put that caveat out there. It's the 10-year yield that determines mortgage interest rates, not the Fed's interest rates itself. The Fed's interest rates are simply the overnight lending rate. But if we look at the Fed's interest rates as a proxy, a directional guideline as to where mortgage interest rates will head, we're expecting now, based on the weak jobs data, two rate cuts, which means it looks likely that by the end of the year, you can borrow money to buy a home, possibly, at a cheaper rate than you can right now. And that's good news for both sellers, because there aren't a whole lot of buyers on the market right now, and it's a good news for buyers for obvious reasons. So that is your good news. The irony is that the Fed's been under a lot of pressure to cut rates, and they didn't do it at their last meeting.

They made that announcement on Wednesday. And with the data that came out this morning, that seems to be a mistake. At least I think you could make a strong argument that that might have been. bit a mistake. And so the markets are now pricing in near certainty that the Fed's going to cut rates at their next meeting in September. And I think the only question is, is it going to be a quarter of a percentage point or is it going to be half of a percentage point? On the other hand, let's just make the counter argument. On the other hand, I can imagine Fed governors saying, wait a second, we don't know what the inflationary impact of tariffs are going to be.

so despite the jobs report data, is it prudent to lower interest rates when we don't know the effect of tariffs? You can see why there's dissent in the Fed right now. It's actually, particularly with this morning's new jobs data, it's a tough time to be a Fed governor, which is to say it's a tough time to know which is the right decision. Do we brace for the possibility of higher inflation or do we spur the labor market to? to create more jobs. We will know on September 16 and 17, which is the next time the Fed meets, but right now, as of this morning, investors are betting that the Fed is going to move

to improve the labor market by virtue of cutting rates. And that is why the dollar is weakened. We're going to take a break to hear from the sponsors who make the show possible. And when we return, we'll talk more about home sales, which are at their slowest pace in 30 years, as well as the return of meme stocks. Yeah, meme stocks are a thing again.

But before we get to that, we've got some mixed news about the economy that comes from the GDP numbers. We're going to dive into those. We're also going to talk about the inflation numbers that comes from the PCE report. And we're going to talk about drama in the Fed governors and why there's a new culture of dissent

that we haven't seen in 30 years. All of that is coming up. after this. The holidays are right around the corner and if you're hosting, you're going to need to get prepared. Maybe you need bedding, sheets, linens. Maybe you need servware and cookware. And of course, holiday decor, all the stuff to make your home a great place to host during the holidays. You can get up to 70% off during Wayfair's Black Friday sale. Wayfair has Can't Miss Black Friday deals all month long. I use Wayfair to get lots of storage type of items for my home, so I got tons of shelving that's in the entryway, in the bathroom, very space saving. I have a daybed from them

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They are an agency inside of the Department of Commerce, and they put out a report on the 30th on Wednesday that found that real GDP rose at an annual rate of 3% in April, May, and June. That's a big deal for two reasons. Number one, it's a big improvement over how we performed in the first quarter. So in January, February, March, GDP decreased by one-half of a percentage point. So to go from a slight decrease to a 3% annual rate increase is a huge swing. That's a big improvement from the preceding quarter.

That's one of the two reasons it's notable. The other reason it's notable is because if you compare the U.S.'s performance to other developed nations, it's a standout winner. Europe has mostly flatlined and Germany has actually declined. Now, if we dig into the GDP numbers, the picture gets a little more nuanced. So there are two reasons why GDP rose in the second quarter. One is an increase in consumer spending, which is great. Great for the economy. We love to see it. spend when they have discretionary money and when they feel confident. When consumers spend, businesses make more profits.

State and local governments collect more sales tax. Everybody's a winner. But that was only one of two reasons why GDP rose. The other reason is because of a decrease in imports. So the way that GDP is calculated is consumption plus investment, plus government spending, plus exports minus imports. That's the formula for GDP. And since imports are subtracted when we're calculating the GDP, a decrease in imports, likely from the trade war, and tariff uncertainty, plays a role in boosting our GDP numbers.

Now, this could overall be a positive sign because if imports are down, but consumer spending is still high, domestic production has to fill that demand. But remember, if you think about that entire formula that I just outlined, consumption plus investment plus government spending, plus exports minus imports, right? What we saw in the last quarter is that consumption rose, but there was a decrease in investment. In fact, there's a particular metric. It's called real final sales to private domestic purchasers. That's the C plus I, right? That's consumer spending plus gross private fixed investment. In the second quarter, that rose by only 1.2%. That's a decrease from 1.9% in the first quarter. What that reflects is that investors are a little bit leery. Investors are worried in playing it cautious, likely as a result of some

uncertainty going on right now. There's also one other part of this report that I want to draw out, and it's the personal consumption expenditures price index. As we've talked about on a few other first Friday episodes, there are a few different ways that we can measure inflation. One of those ways is through what's called the CPI, the consumer price index. And in fact, the CPI has two different types of numbers, headline CPI and core CPI. We can get into that later. But for right now, I want to focus on the third way that we look at inflation, an alternate way of looking at inflation, and it's through the PCE index, the personal consumption expenditures price index. Part of the reason that we look at both is because these are separately derived from different

agencies. So the PCE is developed by the BEA, the Bureau of Economic Analysis, which is part of the Department of Commerce. By contrast, the CPI is developed by the Bureau of Labor Statistics, which is part of the Department of Labor. And so by looking at both indices, we get to see different calculations that are produced independently by two completely different departments, not just different agencies, but agencies under different departments. And of course, both use different methodologies, different data sources, so we get a much more well-rounded picture. Now, the Fed, the Federal Reserve, they actually prefer to use the PCE as their inflation gauge, even though in the popular media we tend to focus on CPI.

And part of the reason for that is because CPI is used when Social Security is making its cost of living adjustments. So with all of that said, with that groundwork laid to that introduction, the question now is, what did the BEEA discover when they calculated the PCE? Is it good news or bad news? It's good news. In the second quarter, the PCE rose by 2.1%. That is almost perfectly at the Fed's target 2% rate, and it's a huge improvement over the 3.7% that we saw in the first quarter.

Remember earlier when I said that there are two different ways that we look at CPI? There's core CPI and headline CPI. Well, the same is true with the PCE. There's Core PCE and Headline PCE. What's the difference? I'm glad you asked. Headline PCE includes everything. It measures inflation by tracking how the prices have changed on all kinds of goods and services that customers buy.

Nothing is left out. But there's a different number that's called Core PCE, and it strips away food and fuel, groceries and gas. The reason being that those two. two categories are incredibly volatile and often have price changes that are not reflective of overall inflation. So, for example, if there's a massive natural disaster, or if there's a war, or if there's some big disease that sweeps through a bunch of crops, or heck, if a ship gets stuck in the Suez Canal and supply chains are disrupted, all of those things can trigger these temporary price shocks that reverberate through food and fuel because those are

two things that people are buying constantly and that we can't ever stop buying. So they're very, very price sensitive. But a temporary price shock that's the result of a drought or a heat wave, that doesn't reflect overall inflation. And so that's why we always look at both numbers. Because with headline CPI and PCE, we want to know how much are people spending. But with Core, we want to know, all right, if you strip away the two most volatile elements, then how much are people spending? And when we look at Core PCE with food and fuel stripped away, the picture is rosy, but it's not quite as good. So Core PCE increased by 2.5% in the second quarter. That is overall pretty good.

Remember, the Fed's target rate is 2%. And as compared to the first quarter, it's very good because we were at 3.5% in the first quarter. So that's an entire percentage point decrease from where we were at the start of the year. So it's not quite as good as the 2.1 that we see in the headline PCE numbers, but it's still pretty darn good. So these two big reports that came out, one is the GDP report, the other is the PCE report. They're both showing good news. The GDP report is showing that our economy is growing, and the PCE report is showing that inflation is decreasing. And inflation is actually pretty darn close to where we want it to be.

Wednesday was a big day. Not only was that the day the BEA report came out, it was the day that the Fed made their latest interest rate announcement. And in a move that shocked absolutely no one, they held rate steady. What was interesting about this particular Fed meeting, though, is that there was some dissent in the ranks. In order to contextualize that here is a primer on how this is all set up. So the Federal Reserve has a Board of Governors and there are a total of seven members. There's the Fed Chair, Jerome Powell, and there are six other governors. So the seven of them in total make up that Board of Governors.

There are also 12 regional Federal Reserve banks and each one of those regional banks has a president. In total, you've gotten 19 people who are in key leadership positions at the Fed. But not all of them are involved in setting interest rates. Setting interest rates is specifically done by what's called the Federal Open Market Committee. And they have a voting structure that includes all seven of the governors plus five out of the 12 regional bank presidents. Four out of those five are in rotation. And for that fifth seat, there's a permanent seat that's always given to the president of the New York Fed. So just to go over the voting structure, we've got the...

the seven people who are on the board of governors, which includes the Fed chair, and then we've got a permanent seat for the president of the New York Fed, plus four rotating seats that rotate among the remaining 11 members of the other regional Fed banks. So that gives us a total of 12 voting members. Now, that brings us to Wednesday. Because on Wednesday, 11 out of those 12 people voted, there was one Fed governor who didn't attend the meeting and therefore didn't cast a vote. Of the 11 out of 12 who voted, there were two dissenting votes.

That never happens. The last time that happened was 32 years ago in 1993. That was the last time that we had two dissenting votes. Normally, everyone votes in lockstep. It is rare to have even one dissent. And on Wednesday, we got two. Now, it should be noted. Of the two people who dissented, one of the two, Michelle Bowman, has dissented previously.

So she has a consistent history of dissenting from the rest of the Fed in September, all the way back in September, she voted against the Fed's decision to lower interest rates. That was the first no vote cast by a governor since 2005. And at that time, she explained that she was still worried about inflation and she would have preferred a smaller cut. This time around, the rationale for the dissent is the opposite reason. It's the notion that the U.S. is right on the verge of a big uptick in productivity, and that means that we need to loosen monetary policy, make capital easier to access. So we finally got some dissent. That's a good thing. It makes the Fed meetings a lot more interesting. The practice of everybody voting unanimously was really set during Alan Greenspan's era. So that was back in the 90s. And the idea at the time was that if the FOMC all voted unanimously, it would create this. this united front. And I think now culturally we're seeing a shift away from that, a shift away from that culture that was formed in the Greenspan era, and we're moving towards more of a culture of

dissent, which is, I should add, what we had back in the 80s when Volker was the Fed chair, because Volker was super controversial. Paul Volker, he was dealing with a really tough situation back in the early 80s. He was dealing with double-digit inflation at the time. interest rates back then went as high as 20%. And so obviously that's going to be super controversial. So back in the 80s, there was lots of dissent among the Fed governors and among the voting members of the FOMC. And for the last 30 years, that's ended.

And so that's what made Wednesday's meeting so exciting. It reflects not just dissent around this specific issue. of whether interest rates should remain steady or whether they should be lowered. There's the specific issue to look at. But in addition to that, it also reflects a shift in the culture of how the FOMC operates. It reflects a willingness to dissent that has not been there for the last 30 years. Okay, we just covered the GDP. We talked about the inflation data.

We talked about drama with the Fed governors. next up, it's time to talk about what's happening in the housing market and the return of meme stocks. So we're going to take a final break to hear from the sponsors who make this show possible. And then it's time to buy some Krispy Cream. Welcome back. Home sales are at their lowest point in the last 30 years. People are not buying. There's not a ton of transaction volume.

It's a tough time to be a real estate agent or broker because you make your money on commissions. and there are not that many commissions to be had right now. It's also a tough time to be a seller because you put your property out there and unless you price it very aggressively, it's harder to get sales. Particularly, I mean, you think back to 2020, when the moment a home would hit the market,

it would immediately get multiple offers above asking price. This is the opposite of 2020 right now. It's a great time to be a buyer for exactly the same reason that it's a terrible time to be a seller. So if you have the ability to buy right now, do. The drawback, of course, as the interest rates are high, that's been the case for a while. But remember, marry the property, date the rate. If you can get a proof for a mortgage, buy the property and then refi in a couple of years when rates go down.

And as we just discussed, there are probably going to be a couple of rate cuts this year. And we don't know what next year's economic data will be. But assuming that inflation stays low, there may be. a few more rate cuts next year as well. So if you are a home buyer getting into a higher interest mortgage, you likely will not have to hold on to that high interest mortgage rate, at least not at its current rate for that much longer, maybe a year. Again, we can't predict the future. I always want to be leery about predicting the future, but based on current economic trends, based on what the markets are pricing in, that's the best estimation of what's to come.

Now let's unpack the market a little bit, the housing market, because as I often say, there is no such thing as the housing market. There are simply millions upon millions of micro markets, local markets. And so what's true in downtown Seattle is going to be wildly different from what's true in Columbus, Ohio. So here's what we see nationwide. According to the latest data from the K. Schiller Price Index, across the U.S., all nine U.S. Census divisions reported an overall annual price gain of 2.3% in May. And bear with me for a moment. I'm going to throw a few more numbers at you, and then we're going to contextualize this.

So the 10-city composite index reported an annual increase of 3.4% while the 20-city composite index reported an annual increase of 2.8%. Those are annual year-over-year increases. And that is as of Mays data. What does that mean? It means despite the fact that home sales are in the toilet, home prices are still rising, but they're rising slowly and they're rising at roughly ballpark the level of inflation. And this is consistent with historical trends, not the part about the sales being in the toilet, which is another way of saying transaction volume is.

low and average days on market is high. That part is not necessarily historically consistent. We've seen a lot of variation there. But the other part, the part about homes keeping pace with inflation is historically quite consistent. If you look over a multi-decade time span, home prices nationwide have surpassed inflation by about two percentage points. So home prices nationwide overall over a multi-decade time span have grown at around a 5% rate, that's according to data from the National Association of Realtors. And even in times of sluggish growth, which is what we are going through right now, it is historically consistent that home prices would keep pace with inflation, which is what we're currently seeing. That being said, there are a lot of regional

differences. So the shortage of homes is most severe in the Northeast and in the Midwest. Those are the regions that are experiencing the highest levels of price growth. In fact, in New York, home prices grew year over year at 7.4%. That's according to the K. Schiller Index as of the month of May. By contrast, some of the areas that have had big construction booms in recent years, specifically Florida and Texas, but also Dallas, Denver, San Francisco. These areas are seeing home prices stay the same or even slightly decline. Now, there are a lot of internet clickbaiters out there who will like to point to that and say, the housing market's going to tank. It's not because we don't have enough homes. But here's what we do know. Affordability has pretty much reached its breaking point.

And it's not just because of mortgage interest rates. It's a combination of factors. It's the fact that home prices rose so drastically, so dramatically in 2020 and 2021, climbing nationwide 17% in one year during the pandemic. So you have a very, very steep rise in home prices, which translates to a rise in property taxes. On top of that, in many parts of the tax. U.S., you have a rise in insurance rates, particularly in areas that are prone to natural disasters. And then on top of that, you have higher mortgage rates.

So you've got this confluence of higher home prices, higher property taxes, higher insurance rates, higher mortgage interest rates, all of those together impact affordability, which impacts the number of buyers that are in the buyer pool. On the flip side, things that are working in favor of housing, you have very high levels of employment slash very low levels of unemployment, historically some of the lowest unemployment we've ever seen, and that has been consistent for many, many years, coupled with a supply shortage. So you have a handful of competing factors that are creating this push and pull. I want to reduce some data from the Department of Housing and Urban Development, HUD. they released their housing market indicators, their monthly update for the month of June. Specifically, to clarify, the report is the June report, but it draws on data taken from May. And the primary sources for the data are a combination of both HUD and the Census Bureau.

So, HUD found that the percentage of new single-family home sales dropped by 13.7% in May. and year over year, they're down 6.3%. Now, that's for new construction, new homes. By contrast, existing homes, older homes, did better. So existing homes, which includes single-family homes, townhomes, condominiums, and co-ops, actually increased by 0.8% in the month of May. And existing home sales are based on closings, so that reflects contract signings that took place in April and March.

So big picture, existing. homes are doing better than new construction, which is great news for anybody who owns an existing home. It's bad news for the future of real estate because that disincentivizes builders to build, and that leads to that next stat, which is total construction of new homes, fell. So housing starts, single-family housing starts, are 7.3% lower year over year. So not only do we have a supply shortage, but it's likely about to get worse because fewer builders are. building as compared to a year ago. Now, that's specifically for single-family homes.

By contrast, multifamily housing starts are actually up 5% year-over-year. The builders who are building are not building single-family. They're building multifamily, which means the investment thesis likely is buy and hold rather than flip. Now, HUD in its report also pulled data from the federal housing finance agency that, That mirrors what we saw with the K-Shiller index in that annual gains on home prices range between 3% to 3.4%. So the K-Shiller data versus the FHFA data is fairly consistent in that we're seeing home prices rise at around 3%, 3.5% around ballpark at the level of inflation. HUD also found that the inventory of homes per sale rose, and that was true both for new

construction and for existing homes. Inventory is up 8.1% year over year. And concerningly, they found that the average homeowner's equity declined slightly and the number of underwater borrowers rose for the third consecutive quarter. That's a stat that we want to watch because if that gets too out of hand, if there would ever be a crash, and right now there's no evidence that were anywhere near that. But if there would ever be a crash, it would likely be because we would have too many underwater borrowers or we would have homeowners with too little equity. Right now, we're nowhere near that. The Federal Reserve estimated that homeowners equity, which is measured as property value minus outstanding mortgage debt,

homeowners equity fell by 0.7% for the fourth quarter of 2024, which is the most recent data that we have. And cotality, which is formerly CoreLogic, estimated that the number of underwater borrowers rose by 76,000 people during the fourth quarter of 2024. And what that means is that 2.1% of residential properties that have a mortgage on them are underwater. So that is the state of the housing market. Overall, housing is strong, it's steady. It's continuing to appreciate at the rate inflation, but it's a bad time to sell and a great time to buy. And remember, your mileage may vary because what's true in Wichita, Kansas is going to be very different from what's true in Tampa, Florida. So, anytime you hear national data on the real estate market, take it with

a grain of salt because what truly matters is the local data in your locality. Finally, meme stocks came back. That was not on my 2025 bingo card. But it started. Started with Open Door. Open Door is a platform that I used to write for them, actually, back when I used to be a freelance writer. They're a platform that makes automated offers on real estate. So if you have a home, you can type in your address and they'll send you an automatic offer. They'd try to essentially blend tech automation with the real estate home buying process, acting as a roboflipper, essentially. Anyway, on July 21st, shares of open door soared by 120% for reasons that could not be justified by any kind of fundamentals. And that was the beginning of Memstock 2.0. And after that, Coles jumped, Krispy Cream. GameStop, of course, got in the action, AMC theaters. In fact, one easy way to remember what the latest round of meme stocks are is through the acronym Dork. Crispy Cream, which ticker, sims, symbol donut, D-N-U-T.

That's the letter D, so donut, open-door technologies, rocket, and coals. Those are the dork trades. And that term was coined by Spencer Jacob. He was a guest on this podcast. He wrote a book about, he's a Wall Street Journal reporter, who wrote a book about the GameStop meme stock crazed during the pandemic. Excellent, excellent piece of narrative journalism that talks. through that entire saga, all of the factors that went into place to fuel what happened

and the reverberations from the fallout. We'll link to that episode in the show notes if you want to hear it. It's a fascinating story. In any event, the dork stocks, among others, were the latest meme stock targets. And what that means is that there was massive trading volume on companies that were among the companies with the weakest balance sheets and companies that were often the most shorted. So you've got companies with weak fundamentals, terrible balance sheets, they're being shorted a lot, and then all of a sudden there's this huge spike in trading volume

that sends the price soaring. That's what happened again. The last time that this happened, there were some subredits that were really at the forefront of that, particularly Wall Street bets. This time, it seems to be more dispersed. There wasn't a subreddit with a couple of charismatic leaders. There wasn't a YouTube channel like Roaring Kitty that really came out as a figurehead.

There was just sort of another meme stock pylon in which rising prices led to further rising prices. And so it got wild. Shares of coals spiked 2,589% in trading volume. Not in price, in trading volume. Krispy cream spiked 4,371%. Again, in trading volume. GoPro's trading volume rose by 2,727%. All of this lasted for a couple of days, and then it pretty much faded.

The meme stock rally is already over. And if there's anything to take away from this, it's that those price swings are very sharp and very short. So if you see any headlines talking about another meme stock craze, please don't get involved. Just stay out of it because if you blink, it's going to be over. And it's far, far too easy to be left holding the bag. Again, we're going to link to our interview with Wall Street Journal reporter Spencer Jacobs, who has covered this extensively and who joined us on a previous episode to deeply go into the history of this weird. cultural phenomenon known as meme stocks.

And so that is our monthly update on what's happening in the economy and in the markets. Thank you so much for being part of the Afford Anything community, for being an afforder. We have a course on how to ask your boss for a raise or how to negotiate for a raise if you're switching jobs. It's a course on how to make more money at work, whether you're staying at your current role or whether you're switching into a new role. We're going to open that course up for enrollment next week. If you want to learn more, join our newsletter.

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