Posts filed under “Real Estate”
Barron’s Alan Abelson references David Rosenberg, Merrill Lynch’s economist, in a post on Housing. Rosenberg’s roundup of the enormous influence of housing on the economy as a whole should not be unfamiliar to readers of this blog.
Housing is Dominating Economic Activity
• Real estate has accounted for 70% of the rise in household net worth since 2001.
• Over 40% of private-sector jobs created since 2001 have been housing-related.
• Excluding housing, real final sales slowed sharply in the first quarter of 2005 to a 2.4% annual rate, from 3.2% in the fourth quarter and 4.9% in the third quarter, of 2004.
• Subprime market has accounted for a 28% share of new mortgage funding in the past six months (vs. 5% five years ago).
• The Fed’s loan-officer survey shows that mortgage standards have eased a massive 13 percentage points in the past three years.
• An estimated 42% of first-time buyers made no down payment on their home purchases last year.
• In the hottest price areas, adjustable-rate mortgages (ARMs) now account for over 50% of new mortgage originations.
• Over 60% of new mortgage loans in — where else? — California this year have been in interest-only loans or option ARMs.
• According to the FDIC, 38 of 50 states in the past year have seen home- price appreciation far outpace personal incomes — and nationwide, home prices grew 6.7 percentage points faster than incomes.
• From 1955 to 1995, home prices rose with inflation, or basically 0% in real terms. Since 1996, home values have risen 45% in real terms. End result: a $5 trillion increase in housing-bubble wealth.
• Over a third of homeowners are devoting over a third of their income to monthly mortgage payments; 12% are devoting over half their income.
• Homeowner affordability is now at a 13-year low and total household debt-service ratio in the first quarter hit a peak 13.40%.
• Oversupply may be a looming risk to prices — housing starts at two million units per year are now outpacing new household formations of 1.6 million. Could the excess supply, David muses, reflect speculative buying?
• National Association of Realtors data show 23% of home sales in the past year were "investor" (read: speculative) based; another 13 were second property.
• A proxy for speculative buying, he reports, namely units sold but not yet started, are up 47%, year over year, a record high. Nearly one in four Americans polled in the University of Michigan Consumer Confidence survey believe that now is a good time to buy a home because it’s a good investment and/or prices will continue to appreciate. That represents a 25-year high in bullishness.
• His research shows that 60% of the country is currently in a housing bubble (where the ratio of house price to income is greater than one standard deviation from the historical mean). And that includes the Northeast, the Pacific Coast and any number of pockets in between.
• He calculates that a decline from double-digit growth in home prices to no growth would trim at least 1% from GDP next year (which, he reports, is the current experience in the U.K.). Of course, if we might put our two cents in here (that’s all we have on us on us at the moment), such a drastic change in the trend of housing prices would reverberate through the length and breadth of the economy, and its real effects would be as profound as they are unfathomable.
While I have been pounding the table that Real Estate is the only robust sector of the economy for a year now (and as recently as yesterday), the credit for quantifying this info goes to Asha Banglore of Northern Trust. She was the first person to actually measure the impact . . .
Yuan Upmanship A LITTLE PREGNANT?
UP AND DOWN WALL STREET
Barrons, JULY 25, 2005
Housing Market – Another Information Tidbit
The Northern Trust Company, May 23, 2005