Has an improving job market and cheaper borrowing costs revived the residential real estate market? Home construction rebounded in July by the greatest amount since November, rising by 15.7% to a 1.09 million annual rate. Permits also exceeded expectations, rising by 8.1% to a 1.05 million pace thus suggesting housing should remain robust for the intermediate future.
It is generally accepted approximately 1.5 million houses must be started annually to meet innate demand. The average for the last five years is 723K, the result of the building boom of 2004 2008 where an average of 1.84 million houses was started annually.
Is the housing industry entering into an elongated cycle similar to that of the auto industry? In my view the similarities between the two are great.
An increase in home building is pivotal if the economy is to enter the proverbial escape velocity mode. Many measure their net worth by the value of their home not by their stock portfolio.
2013 information from the Investment Company Institute states the average stock portfolio is worth $39,000 and approximately 47.1% of households own publically traded securities.
According to a 2014 Census Department study, approximately 64.7% of people own their homes and the average value of a home is $269,800. I think it is noteworthy that historically 65.2% of society owns home, thus suggesting there is nominal imbalance.
According to the Federal Reserve the average mortgage balance in January 2014 is $156,474.
Housing is also the leverage play. Any increase in value automatically increases one’s net worth (and vice versa).
Depending upon the data point used, and according to the National Association of Realtors home prices are up about 30% from their nadir in 2011. I must write prices fell about 33% from their 2006 according to Case Schiller Home Price Index thus suggesting about half of the drop has been erased.
As asked above, is the economy poised to enter the escape velocity mode led by the typical accelerant—housing?
Perhaps FRB Chairman Yellen can offer some insight when she speaks tomorrow in Jackson Hole.
Today the Minutes from the July 29-30 FOMC meeting are announced. Will all ignore the Minutes and instead focus upon tomorrow’s speech? Perhaps.
Commenting upon yesterday’s market activity, stocks staged another light volume rally amid economic optimism and a relatively benign inflationary environment. Treasuries were essentially flat.
Last night the foreign markets were mixed. London was down 0.41%, Paris down 0.28% and Frankfurt down 0.36%. Japan was up 0.03% and Hang Sang up 0.15%.
The Dow should open little changed ahead of the Fed Minutes as such is expected to be dovish. The 10-year is off 2/32 to yield 2.41%.