The final month of President Biden's 48 months in office saw a surge in the relative unaffordability of new homes.

The monthly mortgage payment for the median new home purchased in the United States would consume 42.9% of the monthly income earned by the typical U.S. household, up from December 2024's revised figure of 38.7%. January 2025 represents the 34th consecutive month in which the monthly mortgage payment for the median new home purchased in the United States exceeded 36% of the median household's pre-tax income, the upper threshold of household income that mortgage lenders use to determine whether they will lend to a household that has no other debt.

The latest update of our chart tracks the changing relative affordability of the typical new home sold in the U.S. is for the typical American household with respect to the mortgage lending industry's key affordability thresholds from January 2000 through January 2025.

The relative unaffordability of new homes was driven up by two factors in January 2025. First, the initial estimate of the median price of new homes sold jumped to $446,300, more than $30,000 higher than December 2024's median price. Second, the average mortgage rate for a conventional 30-year fixed rate mortgage averaged 6.96% in January 2025, up from December 2024's average of 6.65%.

The affordability crisis for new homes has its origin in the high inflation that was unleashed by the Biden-Harris administration's policies in March 2021. Although it rose slowly at first, the cost of monthly mortgage payment began to skyrocket after December 2021. As a percentage of median household income, the monthly mortgage payment for a new home climbed above the key 36% threshold of relative affordability in April 2022. The relative affordability of new homes has remained above this level for 34 consecutive months.

References

U.S. Census Bureau. New Residential Sales Historical Data. Houses Sold. [Excel Spreadsheet]. Accessed 26 February 2025. 

U.S. Census Bureau. New Residential Sales Historical Data. Median and Average Sale Price of Houses Sold. [Excel Spreadsheet]. Accessed 26 February 2025. 

Freddie Mac. 30-Year Fixed Rate Mortgages Since 1971. [Online Database]. Accessed 3 March 2025. Note: Starting from December 2022, the estimated monthly mortgage rate is taken as the average of weekly 30-year conventional mortgage rates recorded during the calendar month.

Image Credit: House keys on hand photo by Maria Ziegler on Unsplash .

After January 2025's good start, February 2025's dividends were mildly disappointing, as Wall Street's bear took away some of the dividend increases investors had hoped to catch.

Leaving that picture behind, dividends did take a mildly bearish turn in February 2025. Investors looking for an increase in the number of companies increasing their dividends in February 2025 got them, but they got fewer than what they did a year earlier.

On the other hand, the number of firms announcing they would pay an extra, or special, dividend to their shareholders increased over the number that did in February 2024, but not by enough to offset the net reduction in the number of favorable dividend changes reported during the month.

Meanwhile, the number of dividend decreases ticked up by two year-over-year, making February 2025's unfavorable dividend changes more unfavorable.

Tallying all the month's positive and negative dividend changes from February 2024's values puts it squarely in the negative column. February 2025's magic dividend number, the single number that simply describes how good the month was for the dividend paying companies of the U.S. stock market, is -11.

All the month's favorable and unfavorable year-over-year changes in dividends are listed and totaled in the following table, which also provides the month-over-month numbers and changes.

The following chart visualizes the monthly counts of dividend increases and decreases from January 2004 through February 2025. It shows the trend for dividend paying companies that's been moving downward since 2023 remains in place:

We anticipate the now two-year-old downward trend will continue to assert itself next month. But we'll be happy to be wrong if that's not the case.

References

Standard and Poor. S&P Market Attributes Web File. [Excel Spreadsheet]. Accessed 3 March 2025.

Image Credit: Microsoft Copilot Designer. Prompt: "An editorial cartoon of a Wall Street bear catching a salmon in a stream that has the words 'DIVIDEND INCREASES' written on it. Downstream, several investors look disappointed".

Motio Research's initial estimate of U.S. median household income in January 2025 is $82,373. This figure is $164 (0.2%) lower than the firm's initial estimate of median household income of $82,537 in December 2024.

Motio Research's estimates are based on income data collected by the U.S. Census Bureau through its monthly Current Population Survey, which are conducted in the month following the month in question. The firm adjusts its monthly estimates to account for the effects of seasonality and inflation in its data, presenting its results in the form of an index with the median household income of January 2010 assigned a value of 100. The initial value of the firm's U.S. Real Median Household Income Index for January 2025 is 116.6.

The following screenshot of Motio Research's interactive chart shows how this index has changed from January 2010 through January 2025:

Motio Research also generates household income estimates for the 25th and 75th percentiles in addition to its 50th percentile (median) estimate. The firm reports the households at these positions in the income distribution saw increases over their November levels. Here is what they reported in their 19 February 2025 press release:

The real 25th percentile household income index dropped by 1.2% in January, reaching a value of 115.9 (or $41,254). Over teh past three months, the lower-quartile index has decreased by 1.4%, now standing 0.9% below its value from a year ago. It also remains below its pre-Covid peak of 117.7, highlighting a continued lag in income recovery for lower-income households.

At the upper quartile, the household income index rose by 0.3% in January, climbing to 121.3 (or $148,066). This marks a 0.4% increase over the past three months and a 1.3% rise compared to the same period last year, further extending its lead above the pre-Covid peak of 117.6.

Motio's press release notes its January 2025 quartile and median estimates "underscore divergent trends in household income." They report that diverging trend has existed since September 2024, during which lower-income households have seen income erosion while higher-income households have registered gains.

Analyst's Notes

Political Calculations produces estimates of median household income that complement the monthly survey-based estimates produced by Motio Research, which we derive from aggregate income data produced by the Bureau of Economic Analysis. Our initial estimate of median household income in January 2025 based upon our alternate methodology is $82,797, which is $3 less than our initial December 2024 estimate of $82,800. Our median household income estimate is $424 (0.5%) higher than Motio Research's January 2025 estimate.

The latest update to Political Calculations' chart tracking Median Household Income in the 21st Century shows the nominal (red) and inflation-adjusted (blue) trends for median household income in the United States from January 2000 through January 2025. The inflation-adjusted figures are presented in terms of constant January 2025 U.S. dollars and are not seasonally adjusted, unlike the data used to produce Motio Research's Household Income index:

Political Calculations' monthly median household income estimates are derived from the Bureau of Economic Analysis' monthly aggregate wage and salary estimates for the U.S. population. For January 2025, this data includes substantial downward revisions to aggregate income estimates for July (-0.27%), August (-0.46%), September (-0.54%), October (-0.60%), November (-0.56%), and December 2024 (-0.58%).

The revised data indicates the previous six full months of income data had been inflated following September 2024's substantial revision.

The effect of the downward aggregate revisions in these six months is to lower our estimates of median household income during this period. In the case of December 2024's initial estimate of $82,800, which we referenced earlier in these notes, the newly revised estimate for this month is $82,619, some $181 lower than the initial estimate.

References

U.S. Bureau of Economic Analysis. Table 2.6. Personal Income and Its Disposition, Monthly, Personal Income and Outlays, Not Seasonally Adjusted, Monthly, Middle of Month. Population. [Online Database (via Federal Reserve Economic Data)]. Last Updated: 28 February 2025. Accessed: 28 February 2025.

U.S. Bureau of Economic Analysis. Table 2.6. Personal Income and Its Disposition, Monthly, Personal Income and Outlays, Not Seasonally Adjusted, Monthly, Middle of Month. Compensation of Employees, Received: Wage and Salary Disbursements. [Online Database (via Federal Reserve Economic Data)]. Last Updated: 28 February 2025. Accessed: 28 February 2025.

U.S. Department of Labor Bureau of Labor Statistics. Consumer Price Index, All Urban Consumers - (CPI-U), U.S. City Average, All Items, 1982-84=100. Not seasonally adjusted. [Online Database (via Federal Reserve Economic Data)]. Last Updated: 12 February 2025. Accessed: 12 February 2025.

Image credit: U.S. Census Bureau. We modified the public domain image to make it more generally applicable beyond reporting the median household income from 2022.

The S&P 500 (Index: SPX) spent most of the trading week ending on 28 February 2025 on a downward trajectory. Most of that was driven by bad news, the worst of which was delivered on Thursday, 27 February 2025. Nvidia (NASDAQ: NVDA) turned good earnings, but the company's outlook for the topline computer chips that are powering the Artificial Intelligence boom was less positive, which worked to deflate some of the AI bubble the US stock market has been riding, which affects both technology stocks and energy stocks given the industry's power requirements.

On top of that disappointment, several Federal Reserve officials spent the day harping about how they didn't see any reason why they might act to cut short term interest rates in the U.S. anytime soon. That gloom worked beat down interest-rate sensitive stocks in the market.

But worse news arrived on Friday, when the Atlanta Fed's GDPNow tool's projection of what real GDP growth will be in the 2025-Q1 plunged from the preceding week's +2.3% annualized growth rate to -1.5%. Suddenly, bad news became good for stock prices, because even though the change indicates the economy will shrink during 2025-Q1, that prospect means the Fed will almost certainly have to cut U.S. interest rates. That prompted interest rate-sensitive stocks to rise.

That rise however was interrupted by the Ukrainian circus performance in the Oval Office on Friday afternoon, which initially caused stock prices to reverse their gains and drop because of geopolitical concerns before investors realized nothing bad had happened and the whole thing was just a minor geopolitical noise event. Stock prices came storming back and by the end of the day, they sat at 5,954.50, about one percent below where they ended the previous week.

That's also, aside from the echo of a short-term noise even from a year ago, right about exactly where the dividend futures-based model says they should be assuming investors are focusing their attention on the upcoming future quarter of 2025-Q2. Here's the latest update of the alternative futures chart showing that outcome:

There's more to back that assessment. The plunge in the Atlanta Fed's GDP Nowcast for 2025-Q1 was driven by two negative contributions involving January 2025's economic data. The larger contribution was a decline in net exports, which dropped following the Biden-Harris administration's restrictions on advanced semiconductors exports that went into effect at the beginning of the year. Exporters had been trying to ship out as many of these products as they could before the end of 2024, where the trade restrictions all but ensured outgoing shipments of these high-value exports would crash in January. The only question was by how much.

Meanwhile, a smaller contribution to the forecast GDP for 2025-Q1 came from reduced personal consumption expenditures, although personal incomes rose and personal savings rose sharply in January. This latter contribution may be tightly concentrated among highly paid federal government workers and contractors, including those at non-governmental organizations and may be directly tied to their realization their jobs are no longer safer than those of every other industry in the U.S. Workers in the government sector appear to be doing what workers anticipating layoffs have historically done, cutting back spending before they might be laid off, which explains why personal savings rose.

In other words, the bad news of the GDP forecast is not as bad for the U.S. economy as a whole as the forecast GDP decline might make it appear and may be beneficial for many of those other parts of the economy because of the increased prospect for more interest rate cuts in 2025.

Speaking of which, the negative economic data prompted a major change in the expectations of future rate cuts in 2025. The CME Group's FedWatch Tool still projects a quarter point rate cut when Fed meets on 18 June (2025-Q2), but the big change took place in the expectations for following months. The FedWatch tool now anticipates rate cuts at 12-week intervals through 2025, with quarter point rate cuts forecast for 17 September (2025-Q3) and 10 December (2025-Q4).

At this point, stock prices are lower than they might otherwise be in this scenario because investors are focusing on the nearer term future quarter of 2025-Q2. If they shift their focus out to more distant future quarters, stock prices may rally in the short term.

But whether that happens will depend upon what's in the random onset of new information. Here is the flow of market-moving headlines that arrived in the newstreams of the final trading week of February 2025:

Monday, 24 February 2025

• Signs and portents for the U.S. economy:
• Oil settles higher on fresh Iran sanctions, Iraq commitment to OPEC+
• Apple plans $500 billion in US investment, 20,000 research jobs in next four years
• US manufacturers see higher metal prices as tariffs near
• Iron ore snaps four-day rise due to more duties on Chinese steel
• Fed minions told what's expected of them, coincidentally it's what they failed to do in 2021-2022:
• Fed expected to respond strongly to inflation, job market conditions, research shows
• Bigger trouble, stimulus developing in China:
• China says rising food demand requires production boost
• China's pork consumption has no more room to grow, says researcher
• China plans to ban fines without legal basis on private companies
• USTR proposes charging Chinese ships up to $1.5 million to enter US ports
• Bank of Japan's interest rates are still negative after adjusting for Japan's rising inflation:
• Get real, BOJ rates are deeply negative
• ECB minions worried they might be sleepwalking with Eurozone's monetary policies:
• ECB's Wunsch warns of risk of 'sleepwalking' into excessive rate cuts, FT reports
• ECB's Villeroy reaffirms deposit rates could be at 2% by this summer
• Nasdaq, S&P 500 fall as AI caution weighs on tech, Nvidia results in focus
• Nasdaq, S&P, and Dow ended trading mostly lower while yields slipped as well

Tuesday, 25 February 2025

• Signs and portents for the U.S. economy:
• Trump team seeks to toughen chip controls over China, Bloomberg News reports
• Oil prices fall 3% to two-month low on worries about US tariffs
• US bank profits climb as regulator adjusts 'problem bank' tracking
• US house prices increase strongly in December
• Fed minions gearing up for rate cut in June 2025, claim to be worried about financial stability and uncertainty, may have Congress simplify their priorities:
• Fed seen resuming rate cuts in June as consumer confidence takes a dive
• Fed's Michael Barr: 'monetary policy and financial stability are inextricably linked'
• Fed's Barkin: Uncertainty warrants a cautious approach to monetary policy
• Fed's dual mandate faces new congressional task force in monetary policy review - report
• Bigger trouble, stimulus developing in China:
• China's home prices to drop further, recovery not expected until 2026: Reuters poll
• How the state is propping up China’s housing market
• More Signs Of China's Decline
• JapanGov minions thinking about propping up Japan's auto sector:
• Japanese auto industry seeks government help against US tariffs
• Eurozone minions think about propping up EU steel sector and don't think their monetary policy is dragging down Eurozone growth anymore:
• EU promises support for steel sector as US trade tariffs loom
• ECB rates no longer a material drag on growth, Schnabel says
• German economy shrank by 0.2% in Q4, statistics office confirms
• Dow Rises; Nasdaq Falls; Home Depot Stock in Focus
• Nasdaq and S&P slide as Trump reportedly plans tougher chip curbs on China
• Treasury yields drop to their lowest levels in 2025 as market uncertainty rises

Wednesday, 26 February 2025

• Signs and portents for the U.S. economy:
• Oil holds at two-month low on rising supply concerns
• US East and Gulf Coast dockworkers ratify new six-year contract
• US new home sales tumble; median house price highest since 2022
• Fed minions likely to finally face an audit, approach to US debt ceiling likely to affect plans to reduce holdings of US government-issued debt:
• Exclusive: Head of Fed-watchdog task force in Congress plans broad US central bank review
• Fed's quantitative tightening expectations upended by debt-ceiling worries
• Bigger bailouts developing in China:
• China to start re-capitalizing banks with $55 billion, Bloomberg News reports
• Nasdaq ekes out gain, S&P ends little changed ahead of Nvidia's 'pivotal' results

Thursday, 27 February 2025

• Signs and portents for the U.S. economy:
• Oil climbs more than 2% after Trump cancels Chevron's Venezuela licence
• US pending home sales tumble to record low in January
• Fed minions get on bandwagon to claim they won't be cutting rates soon:
• Fed's Harker expresses support for keeping policy rate on hold
• Fed's Hammack says rates likely on hold for some time
• Rise in US inflation expectations means Fed has to stay on guard, Schmid says
• BOJ minions to see more wage inflation in 2025:
• Japanese manufacturing sector union members demand record pay hike in 2025
• ECB minions having trouble running money-losing business, expected to deliver next rate cut next week:
• ECB fixes outage in multi-trillion-euro payment system
• ECB to cut rates again on March 6 as focus turns to growth: Reuters Poll
• S&P 500 ends down as Nvidia tumbles following report
• Nasdaq slides 3%, posts worst day in a month after 'not good enough' Nvidia results
• NVIDIA in charts: Data Center revenue tops $35B but annual growth rate slows again

Friday, 28 February 2025

• Signs and portents for the U.S. economy:
• Oil on track for first monthly drop since November on tariffs, Iraq exports
• US drillers add oil and gas rigs for fifth week in a row, Baker Hughes says
• US consumer spending posts first drop in almost two years
• US goods trade deficit widens sharply in January
• Exclusive: Aerospace industry scrambles to deal with fallout from huge US factory fire
• Fed minions expected to resume rate cuts in June 2025, will keep the Fed's balance sheet steady:
• Inflation, growth may be in conflict but Fed seen restarting cuts in June
• Exclusive: Fed's Hammack eyes steady balance sheet cuts amid US government financial uncertainty
• Bigger trouble developing in China:
• China's manufacturing activity set to contract for second month in Feb
• BOJ minions get data to back their next rate hike:
• Core inflation in Japan's capital slows but stays above BOJ target
• ECB minions' breakdown causing bigger trouble to develop in Eurozone:
• ECB's multi-trillion payments breakdown sends shudders through Europe
• Euro zone consumers lower near-term inflation expectations, ECB survey shows
• Stocks shrug off Trump-Zelenskyy developments, but take home February losses
• Wall Street dips after Zelenskiy and Trump clash
• Trump-Zelensky Meeting Implodes, Threatening Peace Talks

This was a fun week for analyzing stock prices! We love it when the chaotic behavior of stock prices can be explained just by putting it into an appropriate analytical framework. Weeks like this is why the S&P 500 chaos series is a running feature here at Political Calculations.

Image credit: Microsoft Copilot Designer. Prompt: "An editorial cartoon of a Wall Street bull and bear reading a newspaper with the headline 'BAD ECON NEWS, MORE RATE CUTS'"

Humans who lived hundreds or thousands of years ago often get a bad rap.

That's because they lived long before many of the great technological advances that define our world today. How could these people, who lacked the power of modern technologies like computers, or even paper, have any chance to solve difficult problems requiring lots of calculations?

Then, as now, those problems include how to settle the estates of the deceased. Dividing up an estate fairly among surviving heirs can be a tricky thing on its own, but is something that becomes much more challenging if the recently departed died while in debt to others. How did people settle estates between creditors and heirs in this situation? And how did they do it fairly if the amount of debt was larger than the value of the deceased's wealth, belongings, and property? How can such an estate be settled fairly when the deceased was bankrupt?

The answer of how at least one culture resolved this difficult task without modern technologies some 1,800 years ago is remarkable because their approach proved to be the optimal solution according to game theory, which as a field, didn't come into its own until the twentieth century. Mathologer's Burkhard Polster explains how they reached that outcome in the following 40-minute video.

Admittedly, discussions of the content of the Babylonian Talmud and concepts like hydraulic rationing can be pretty dry, but also surprisingly fascinating in how they can lead to an optimal game-theoretic solution.