Housing prices offer small boost
Housing is an important “multiplier” industry. Rising home prices tend to encourage further construction, boosting many ancillary supplier industries. Higher values create a “wealth effect” among homeowners, leading to increased consumer spending and economic activity.
Since 2010, housing starts have increased and prices have risen. Perceived as an indicator of an improved economy, this helped to boost stock markets to nominal highs. However, this picture of recovery is fading. Department of Commerce figures show a recent decline in starts for single family homes. What does this indicate for the economy and stock markets?
Adjusting for inflation, the median income of U.S. households dropped 8 percent from its 2007 high of $54,489 to $50,054 in 2011. That was lower than the $50,624 median income in January 1990, some 23 years ago. Combined with increased taxes and health costs, this means that higher prices have made homeownership and even rentals less affordable for average Americans.
According to a recent Pew Research Center report, 36 percent of adults between the ages of 18 and 31 were living with their parents last year — the highest level since records began. This creates serious economic and social problems.
Zillow Real Estate Research reports that 44 percent of U.S. homeowners lack sufficient equity in their homes to allow them to qualify for further loans. Meanwhile, banks have tightened their lending criteria.
“One of the most overlooked aspects of the recovery is that for many workers, incomes are not rebounding in step with local housing markets,” said Maya Brennan, a senior research associate with the Center for Housing Policy.
So if houses are less affordable, even at current low mortgage rates, who is buying them?
The climb in house sales likely reflects the purchases of first-time buyers, investors and speculators. Furthermore, an increasing number of homes — 30 percent in June — are being paid for in cash. This indicates that most buyers are likely investors or speculators who are purchasing houses either to flip or to rent rather than to live in. Unlike bona fide homeowners, investors and speculators are more sensitive to increased prices and anticipated increases in interest rates. They are reducing their purchases to the lowest levels since September.
At the same time, foreclosure levels have fallen but are still equal to the high level of December 2008. Furthermore, 25 percent of mortgages remain underwater.
Like the rescue of Wall Street, very little of the housing recovery in many areas of the United States appears to have benefitted the majority of Americans. On the contrary, it appears to have contributed to an ever widening and politically dangerous wealth gap.
Perhaps that is why, despite the vast size of government bailouts, consumer demand and employment have remained sluggish. This poses a continuing threat to a healthy economic recovery.
Continued employment uncertainty combined with higher taxes and living costs puts the net disposable income of Americans under pressure. The lack of home buying portends sluggish real economic growth.
John Browne, a former member of Britain's Parliament, is a financial and economics columnist for Trib Total Media. Email him at firstname.lastname@example.org.
Show commenting policy
TribLive commenting policy
You are solely responsible for your comments and by using TribLive.com you agree to our Terms of Service.
We moderate comments. Our goal is to provide substantive commentary for a general readership. By screening submissions, we provide a space where readers can share intelligent and informed commentary that enhances the quality of our news and information.
While most comments will be posted if they are on-topic and not abusive, moderating decisions are subjective. We will make them as carefully and consistently as we can. Because of the volume of reader comments, we cannot review individual moderation decisions with readers.
We value thoughtful comments representing a range of views that make their point quickly and politely. We make an effort to protect discussions from repeated comments either by the same reader or different readers.
We follow the same standards for taste as the daily newspaper. A few things we won't tolerate: personal attacks, obscenity, vulgarity, profanity (including expletives and letters followed by dashes), commercial promotion, impersonations, incoherence, proselytizing and SHOUTING. Don't include URLs to Web sites.
We do not edit comments. They are either approved or deleted. We reserve the right to edit a comment that is quoted or excerpted in an article. In this case, we may fix spelling and punctuation.
We welcome strong opinions and criticism of our work, but we don't want comments to become bogged down with discussions of our policies and we will moderate accordingly.
We appreciate it when readers and people quoted in articles or blog posts point out errors of fact or emphasis and will investigate all assertions. But these suggestions should be sent via e-mail. To avoid distracting other readers, we won't publish comments that suggest a correction. Instead, corrections will be made in a blog post or in an article.
- Pirates storm back with late rally to defeat Diamondbacks, 9-4
- Steelers’ Blake prefers secondary job
- Liberian families in Western Pa. fret over Ebola virus outbreak
- Middle school students invade Elizabeth Forward media center
- Mon Valley narcotics probe leads to multiple arrests
- McKeesport pipemaking plant idling delayed
- Nonprofit prepares school supplies
- HP to pay $32.5M to settle Postal Service dispute
- Strategies for saving seeds
- Pirates notebook: Cole scratched from rehab start at Indianapolis
- Auto sales heat up in July on steep discounts