A key excerpt from TrendTracker Update
By Art Raymond
In July, the current U.S. recovery from the so-called Great Recession entered its 11th year, the longest period of growth since the end of WW2. Looking at the key indicators for our hardwood economy:
- GDP enters its 11th year of growth powered by strong consumer spending.
- Employment Situation continues to list more job opportunities than people to fill them.
- Personal Income surprised to the upside by growing faster than initially measured.
- Manufacturing continues to cool from its August 2018 high.
- Housing continues to underperform, in spite of solid fundamentals.
More on Housing
The housing sector continues to lag weakly behind other key economic metrics. Historically this component has led the economy out of past recessions. Three critical prerequisites enable a healthy housing market:
- a strong job market for young buyers
- reasonable borrowing costs
- an adequate inventory of affordable starter homes
The first two conditions are in place. The problem is the third: the average price of lower-priced starter homes has risen 64 percent in the six years from 2012 through 2018, versus 40 percent for higher-end houses. As a result, the homeownership rate in the U.S. for adults age 25 to 34 lingers at 40 percent, down from 48 percent in 2001. For all ages the combined rate is around 64 percent.
This situation creates a negative ripple effect through the market. Without a first-time buyer, owners of starter homes cannot trade up to a larger home. Demand is negatively impacted across the full spectrum of homes. Older owners of larger homes seeking to downsize may find a dearth of buyers too.
Buying a home late in life has negative consequences. Homeowners who bought their first home between the ages of 25 and 34 had housing-related wealth of $149,000 versus half that amount for first-time buyers aged 35 to 44.
Housing Starts in June came in at an annual rate of 1.22 million, the weakest in two years. The good news is that starts of single family homes was up 3.5 percent.
The level of new construction, of course, is foretold by the number of permits issued. Unfortunately permits are down 6.6 percent year on year, with multi-family off by 10.2 percent and single family down 4.7 percent.
New Home Sales in June increased 7 percent following two months of falling sales. A 6.3 month inventory of new houses is in place, versus six months last year. The median sales price of a new home sold in June was $310,400, nearly the same as a year ago. While a highly visible part of the residential market, new home sales represent only about 10 percent of the total sector.
After a strong start in early 2019, Existing Home Sales weakened in June to 5.27 million. Single family resales fell by 1.5 percent followed, by a 3.3 percent drop in condominium sales. Prices improved by 2.7 percent. Rising prices attracted more sellers with the supply of homes increasing by 10 percent to 1.93 million units.
All in all, in spite of the solid fundamentals noted above, housing continues to be a drag on the U.S. economy.
For the complete TrendTracker Update, please visit www.HMAmembers.org.