You want another reason that real estate is interesting to talk about: Since 2010, the housing market comprised about 15 percent of the Gross Domestic Product.
While to you, your home is very personal, to economists, it’s a measure of the American economy. It’s interest paid to banks. It’s an indication that you are doing well at your job if you are not delinquent on your mortgage payments. If it’s listed on the market, it’s a measure of potential earnings for the real estate agency, attorney, bank, appraiser and everyone else associated with aiding in the transaction. If it sits on the market for a long time, it’s a sign that appetites for home buying are down and all of those same companies could be in for a slowdown in business. For those of you that worked through the 2008 recession, I don’t have to tell you how impactful the housing market is to our overall economy.
Housing typically is a trailing indicator of the health of our economy. If you homeowners are nervous about your jobs, you won’t be so quick to move up to a more expensive home. If you lose your jobs, you might be late on your mortgage payments. And if there are a lot of you feeling that way, then there will be a lot fewer people out here buying houses. And due to the lack of competition, home values are going to drop — making your situation even worse. Not only did you lose your job and are having trouble finding a new one because the job market is down, but your equity stake in your home is shrinking.
For those who worked through the Great Recession, this is bringing back memories. I’m getting a little sick just from writing about it.
The good news is that since the Great Recession, the opposite has been true for 10 straight years. The economy has grown every year. Unemployment shrunk to its lowest level in recorded history, and employers are begging you to leave your current job because they need you. If you bought a house in 2012, it’s probably worth more than 150% of what you paid for it. According to a Corelogic report, American’s total home equity is a record $15.8 trillion this year, up from $6.1 trillion in 2009. You are killing it.
In fact, the housing industry has been doing so well, running so fast, that some things are getting left behind. Values have gone up so fast that if you bought a house in 2012 for $350,000, it’s probably worth upwards of over $500,000 today. That’s great except if you want to move up into a bigger home, instead of being $500,000, it’s probably over $600,000 or $700,000.
Lower income homebuyers are also getting left behind. It’s harder and harder for them to find homes under $300,000. It’s partly an inventory issue as homebuilders are having a tough time finding cheap-enough land to be able to build houses in that price-range and make a profit. And it’s partly that because of the low inventory, home values for homes they might want to buy are rising outside of what they can afford. And it’s also partly that wages have not grown at the same rate as the values of those homes.
The market may be starting to correct itself a bit. Home sales this last June were down 12.7 percent from the same time last year, according to a recent article in the Atlanta Business Chronicle. This decrease in activity could be affecting the homebuilding market. An article in the Financial Times stated that building permits fell 6.1 percent in June from the same time last year.
I don’t have numbers for this month yet, but July started in the midst of a huge drop in interest rates back to near and under 4 percent. This has helped to make more expensive homes more affordable and we may see an uptick in home buying when the July numbers are out.
Geoff Smith is a mortgage banker with Assurance Financial focusing on residential home loans for refinances and home purchases.
Geoff Smith, firstname.lastname@example.org
770-674-1433, Personal: NMLS#104587
*The views and opinions expressed in this column do not necessarily reflect the views of Assurance Financial Group