Tom Hudson
Imagine if the housing market were covered in the news like the stock market.
“Split-level ranch homes from the 1970s in the Midwest fell today after a forecast for a colder than usual winter.”
“Mid-century 3-bedrooms in the Mid-Atlantic rallied as new Census Bureau data showed population growth.”
“Renovated bungalows were steady despite new import data that led to lumber and drywall prices falling.”
Yeah, it doesn’t work, does it?
More Americans own their home, or at least co-own with a lender, than own stocks. The wealth effect of housing can be greater than any stock market rally. This may help explain why, despite the S&P 500 in a bear market, consumer confidence has held up pretty well.
After declining through the spring and early summer, consumer attitudes have improved even as inflation remains unbearably high, interest rates are rising fast, and geopolitical instability looms.
Home price increases have cooled but have not cracked. Owners who have several years under their belt are probably sitting on a lot of equity. Owners’ equity jumped almost 20 percent in the second quarter compared to a year earlier, according to Federal Reserve data. That’s almost $5 trillion dollars in gains U.S. homeowners are sitting on.
Mortgage refinancing has all but stopped thanks to borrowing rates skyrocketing. Yet demand for home equity loans and lines of credit jumped 50 percent during the first five months of the year according to Equifax. Homeowners are tapping into their home’s increased values at the highest rates in more than a decade.
Homeowners and banks are not in jeopardy of experiencing another 2008-style housing collapse. There is less leverage today. While borrowing rates were ultra-low and driving values up, lenders were more disciplined and buyers have more skin in the game. The supply of homes for sale remains very low — less than three and a half months, based upon the pace of existing home sales in August.
Still, the stability of the housing market is vital if the Federal Reserve has a chance of pulling off a “soft-ish” landing, as Chairman Jerome Powell described the agency’s preferred economic outcome as it fights inflation. The latest data on a glide path for housing comes Thursday with the September existing home sales report.
Higher borrowing costs and lower inventory make a slowdown — not a stop — natural for housing.
Tom Hudson is a financial journalist and chief content officer at WAMU public radio in Washington, D.C. Follow him on Twitter @HudsonsView.
