It’s Tuesday News Day and these are this weeks hot topics concerning the real estate market, the financial market, general market conditions, and interest rates.
Wall Street Journal – Why Home Price Gains Aren’t Lifting the Economy
Analysis of whether housing has lived up to its true potential as a catalyst for a stronger recovery has led experts to argue that while housing stopped being a drag on the economy a few years ago, it has failed to propel strong economic growth. Professors Atif Mian of Princeton University and Amir Sufi of the University of Chicago argue that rising home prices haven’t done much to stimulate the economy.
The professors conclude that the home price gains of the past two years have had fewer knock-on benefits for the economy than in the past because those gains have done little to stimulate either new-home construction or increased spending paid for by home-equity borrowing.
They argue current rising home prices won’t greatly stimulate the economy because gains that simply restore lost wealth aren’t as valuable as gains that create new wealth.
Consequently, prices may need to rise even higher for the economy to enjoy any “wealth effect” because it is at that point when people will spend more because they feel richer as their home or stock portfolio rises in value.
Growth is also deterred by tight lending standards, which have made it tougher for homeowners to take cash out of their homes with either a second mortgage or by refinancing into a larger first mortgage.
Also, prices haven’t risen enough to encourage homeowners to sell, which is creating inventory shortages that are being blamed for sluggish sales volumes and higher prices.
And while home prices are up, they’re still not up enough to encourage builders to build more homes because they face higher land, labor, and supply costs.
In other news…
LA Times – Homeownership rate slips to 19-year low while rental market tightens
According to the Census Bureau, 64.8 percent of homes in the U.S. are owner-occupied, the lowest share since the second quarter of 1995, as more households rented and home sales remained low in the first quarter. Homeownership rates topped 69 percent at various times in 2004 and 2005 before the foreclosure crisis and housing crash.
Bloomberg – Senators Delay Action on Fannie Mae Amid Democrats’ Rift
Debate over how to replace Fannie Mae and Freddie Mac lacked consensus among Democrats on the 22-member Senate Banking Committee, which led to ranking members postponing a vote on a bipartisan housing-finance overhaul. Without a vote before the Senate leaves for the summer recess in July, the bill will probably die.
Politico – America’s Housing Market Is Broken
Gene B. Sperling, former director of the National Economic Council for President Obama, wrote in an op-ed that he favors reform legislation issued by Banking Committee Chairman Tim Johnson of South Dakota and ranking Republican Mike Crapo. Sperling comments, “If we face another housing-related recession going forward – or even another regional housing price decline – there could be no choice but another taxpayer bailout.”
AOL Real Estate – Exposing Some Common Homebuying Myths
Friendly (but wrong) advice from friends and family about the home-buying process could perpetuate several myths and deter potential buyers from jumping into the market. For instance, common myths include the need for perfect credit to buy a home and that lenders have free rein in sharing your personal credit information.
Bankrate – One-year plan for new home buyers
For potential buyers who are planning on purchasing their first home within the next year, it’s important to start the education process early so there are no surprises when it comes to loan qualifying guidelines, interest rates, and house prices. Determining how much you are able to borrow is an important step as well.
HousingWire – Buying beats renting in most of America
Buying a home is a better financial decision than renting for home buyers who plan to stay in their home for at least two years in half of all U.S. markets, according to first quarter Zillow breakeven horizon analysis. As rents keep rising and mortgage interest rates remain very low, the rent vs. buy decision has skewed toward buying for those who can afford it.
Bloomberg – Zell Says Homeownership Rate to Fall as Marriages Delayed
More Americans are choosing to rent as they postpone getting married and having children, so the U.S. homeownership rate may fall to as low as 55 percent, according to Sam Zell, chairman of landlord Equity Residential, which is the largest U.S. apartment landlord.
Talking Points…
Housing’s share of gross domestic product (GDP) was 15.5 percent in the first quarter of 2014, with home building yielding 3 percentage points of that total, according to the National Association of Home Builders.
As an important source of economic growth, housing-related activities contribute to GDP in two basic ways. One, residential fixed investment (RFI), which measures the home building and remodeling contribution to GDP. Secondly, the measure of housing services, which includes gross rents and utility payments. For the fourth quarter, RFI was 3 percent of the economy
For the fourth quarter, housing services was 12.5 percent of the economy. Historically, RFI has averaged roughly 5 percent of GDP while housing services have averaged between 12 percent and 13 percent, for a combined 17 percent to 18 percent of GDP.
If you have any questions about the current real estate market give me a call at (408) 840-3852 or shoot me an email at Thomas.Feng@gmail.com to discuss your situation and how to get the most out of the current real estate housing market.
Because of the many legal and tax situations that can arise through the sale and purchase of real estate ALWAYS consult with your ATTORNEY or ACCOUNTANT before making ANY decisions in ANY transaction
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* THIS ARTICLE WAS POSTED AT Thomas Feng’s Bay Area Connect *