Overall, the report is cautiously optimistic that the worst has passed in the housing market, and that housing is likely to make a small but positive contribution to GDP growth in 2012, and improve further over time. This is a matter of concern not only to homeowners, but firms, workers, investors, and governments, as the housing market is large enough to have a major effect on the overall economy.
However, there continues to be a "chicken-and-egg" conundrum: the housing market won't improve until more jobs are created, but job creation depends on an economic recovery that won't fully take-off until the housing market improves. Over 1.4 million jobs directly tied to housing have been lost, and many more have been lost as an indirect consequence. In addition, the "wealth effect," the tendency of people to spend more as their assets grow and less as they shrink, has reduced spending, since housing-based wealth has fallen by over $8 trillion.
Below are some key takeaways from the report, organized under the intimately related headings of supply, demand and price.
· The inventories of new and used houses for sales stand at around 6.0 months of supply, which is considered a balanced market. However, there is an "off-market" inventory of 1.2 million unsold homes, which could further force prices down when it comes onto market. For now, though, prices appear to have stabilized at a level at or below where they were before the boom.
· Single family starts were up 16.6% in the first quarter year-over-year.
· Thanks to record low interest rates and modestly priced real estate, mortgage payments are now more affordable than rent in most areas - indeed, housing is as affordable as it has ever been. As recently as 2006, the monthly cost of a mortgage was nearly 50% more expensive than rent payments. However, strict lending rules have sapped some demand for financing.
· Due to a sluggish employment market, household formation fell far below trend in the last few years, but pent-up demand will inevitably be released as jobs become more plentiful. Net immigration, though, fell in the past few years, largely because of increases in emigrants leaving the US and a rise in the number of deportations. It's unclear if immigration will bounce back to past levels, but in all likelihood the US will continue to absorb large numbers of newcomers in future years.
· Average household growth of 1.18 million from 2010-2020 is predicted, using quite conservative assumptions, and not including any pent-up demand, which is likely significant.
· Sales of distressed properties are depressing prices. Homeowners are very reluctant to sell, however, if they are underwater on their mortgages - "underwater" means the value of the house is worth less than the amount of the related mortgage - which also reduces home renovation outlays, the bulk of which occur soon after someone buys a new house. This is a problem, since more than one in every five mortgages are underwater - 11.1 million, according to one estimate. Renovations, though, figure to improve throughout 2012, as investors gobble up properties to rent, and lender prepare foreclosures for sale. The US home improvement market is a $100 billion-plus market, and any sharp improvement will have an impact on the economy overall.
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