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Housing Contribution To US GDP Lowest In Post-War Era
In “Underwater Homeowners Here To Stay” we highlighted a report from Zillow which showed that negative equity has now become a permanent fixture of the US housing market. The report also showed that the percentage of homeowners who are underwater was flat from Q314 to Q414, breaking a string of 10 consecutive quarters of declines. We also recently noted that a completely ridiculous new home sales print that defied all logic notwithstanding, housing data, including starts and existing home sales, has come in below expectations. On a side note, home price appreciation has outpaced wage growth at a rate of 13:1, to which we would add:
Of course, the biggest determinant of home price appreciation over the past 2 years has nothing to do with US consumers, or household formation, as confirmed by the collapse in first-time homebuyers or the unprecedented depression in new mortgage origination, and everything to do with what we first suggested is one of the main drivers of the US housing bubble - foreigners parking their illegally procured cash in the US and evading taxes, now that US housing, with the NAR's anti-money laundering exemption blessing, is the new normal's Swiss Bank Account. That and flipping homes from one "all-cash" buyer to another "all-cash" buyer in hopes of a quick capital appreciation and the constant presence of the proverbial dumb money.
Against this backdrop, Deutsche Bank is out predicting that a sluggish US housing market is likely to impact the supply of MBS going forward. As DB notes, housing isn’t the GDP contributor it once was and not by a long shot. Not only that, but when it comes to recoveries, the housing market’s GDP contribution was 7 times below its post WW2 average in year one and has fared even worse since. Here’s DB with more:
The contribution of housing to US GDP continues to run at some of the lowest levels since the end of World War II. New construction of single- and multi-family homes, renovations, broker fees and the like still only make up a bit more than 3% of current GDP, well below the post-war average of 4.7%. Not only has the level of lift from housing come in low, but it has bounced out of the last official recession slowly, too. Housing on average has contributed a half a percentage point to GDP a year after the end of every post-war US recession. This time around, housing added only 7 bp. And the contribution of housing in the second and third years after the recent recession also has fallen well below post-war averages.
And while “insufficient supply” (not enough homes) was cited as a possible contributor to the existing home sales miss, DB notes that at least as of today, there appears to still be a “supply hangover” (although it's waning):
US homeownership started the decade at 66.9%, peaked in 2004 at 69.2% and ended at 66.5%. It has since dropped to 64.0%. The exodus of owners initially threatened to leave a lot of extra houses behind and reduce the need to build new ones. But investors have come in to pick up the keys, and many houses have found a new home in the market for single-family rentals. This has helped reduce the supply of distressed homes, although it’s still higher than the levels that prevailed in the early 1990s when homeownership last ranged around 64% . The supply hangover isn’t done but should be in the next two or three years.
And demand isn’t looking so hot either:
Demand has likely played a part in slow housing, too, starting with owners that bought their homes in the last decade. Thanks to a 38% drop in home prices nationally from 2006 to 2012, according to Case-Shiller, a lot of those owners walked out the front door without any equity and without the ability to reenter the market as buyers. This has almost certainly contributed to the drop in rental unit vacancies from 10.6% in mid-2009 to 7.0% today. As for potential new owners, Americans, even before the crisis, started moving into their own place at a much slower pace than the long-term average of 1.2 million new households a year, that is, until recently. Demand from former and potential new owners has been soft.
Even in the best case scenario is which supply falls and demand rises, banks’ reluctance to lend could end up hobbling the market for the foreseeable future.
Although the market seems to be clearing out the lingering housing supply and the economy and the labor market look likely to repair demand, the availability of credit could prove to be the lasting constraint. Today’s lending standards reflect limits designed to keep the last decade’s boom and bust from happening again. Borrowers today without the ability to repay will not get a loan. But it looks like some borrowers with the ability to repay—but with low FICO scores or with needs that keep them outside the agency or prime jumbo markets—will also not get a loan. The market is reducing risk today to avoid risk tomorrow. But it also is likely reducing housing growth today to avoid a downturn tomorrow.
And here's further confirmation of this from BofAML:
* * *
So there is your housing recovery in a nutshell: supply hangover, lackluster demand, and reluctant lenders all coalescing in a housing market whose contribution to US economic growth is virtually nonexistent.
And if you’re looking for the next shoe to drop, here’s a hint:
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"Borrowers today without the ability to repay will not get a loan."
Did we accidentally do something right in the mortgage world?
"But it looks like some borrowers with the ability to repay—but with low FICO scores or with needs that keep them outside the agency or prime jumbo markets—will also not get a loan."
Same question.
One can hope, but unfortunately the mega-banks aren't out of bad idea's yet and they'll have to do something to get rid of the trash mortgages.....
Post-War? USA hasn't been post-war since....whenever?
Question only an idiot or economist could get wrong: If some one bought a home in California in the 1970s for $50,000 and sold it in 2006 for $500,000, how much does this contribute to the GDP?
Idiot/economist answer: $450,000
Rea; world answer: $0 NOTHING WAS PRODUCED.
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WHY WONT OBAMA FIX THE HOUSING MARKET?!?!11
Something needs to be done. I am totaly upsode down and was told only too years agao that this south detroit home would increase in profiets. wtf
I'm making over $7k a month working part time. I kept hearing other people tell me how much money they can make online so I decided to look into it. Well, it was all true and has totally changed my life. This is what I do... www.globe-report.com
the only thing people look at is "how much per month". financial sense went out the window 10 years ago
Agree except it was more than 10 years. I recommend perusing mortgage records of your local recorder. (I look up data on homes for sale). Many times they are online. It is AMAZING how many people have large loans. Even people who bought 15 - 25 years ago. They refinanced along the way, withdrawing "equity." Recently, I found one which was bought in the early 70's and has a loan of around 350,000 on the home - a lot more than the house was when purchased.
I pissed off every car salesman in town by refusing to talk monthly payments.
The market is reducing risk today to avoid risk tomorrow. But it also is likely reducing housing growth today to avoid a downturn tomorrow.
housing blew up the market. so what do they do? tighten loans for housing, and blow up everything else. see, they fixed it for us!
Guess What? it's not a recovery..... STUNNING i know.
paging Mel Watt, Mr Mel Watt* ... please pick up white courtesy phone in lobby ...
*FHFA honcho hoo has lowered down payment to 3% for GSE mortgages ... do i hear 2%? ... 1%? ... ok, ok GSEs will give you a mortgage ... no money down
(responsible) US taxpayer ... assume the position
"and reluctant lenders"
why bother to lend when your proprietary trading desks are backstopped by US taxpayer?
housing headwinds
weak job market means j6p needs mobility (move where necessary ... ie rent)
owning RE makes you a sitting duck for property tax / condo / HOA / mello roos rapings
2 worst pieces of advice i ever got:
1. buy a house, it promotes stability
2. get married, it promotes stability
well, lets just say im renting BOTH a place to live & women for the rest of my life. the house i got stuck with for 4 years after a 3 year marrige blew-up. had to pay several hundred thousand $$$ on a 3-year marrige with no kids to her + lawyer. oh, as for the house that went underwater during the course of the marrige, yeah, i was on the hook for that entire fucking mess. lawyer said id be paying him to fight her and since my income was multiples of hers, would be an uphill battle with no guarantees.
here's my advice to people that i never got:
Keep
It
Simple
Stupid
I didnt travel that path but I am in the same club. Judging by your timeline, you learned that lesson early, bs none the less. K.I.S.S. with everything, less to worry about, less stress, better chance at peacefulness.
^^^
early enough to know im never making the same mistake twice.
if i ever do decide to get married again, i have one rule: the first time was for love, the second time will be for $$$ :)
Why are women obsessed with "owning their own home"...is it like some sort of vestigial evolutionary security blanket or something? I try to explain to mine that owning a home sucks, it's way more expensive than renting, it comes with a million headaches than you know, and fixing shit on a home is a nightmare. No matter how logical this is to her she still has this bug up her ass to "buy" a house (rent one from the government).
^^^
just 1 more thing to tie u down with. a ring + that marrige contract + a house = dramatically reduced risk that you will leave them.
think women are stupid? they have a trader-like mentality. they wanna know their risk-reward ... they do all they can to eliminate THEIR risk of you walking out on them since the more $$$ you have tied-up in the relationship, less likely u are to run off with ur secretary.
You're probably right, the fucked up part is they don't even consciously know it.
After being married (or the equivalent) for most of my 60+ years I am amazed at the fun shit you can get away with in the absence of a female influence) ("Dad can we take apart this motor?" "sure son just bring iit in and we'll do the work on the kitchen table, jusy move my reloading shit off to the side")
People need to change their living standard mentality when it comes to roomates or living with family. Bring back bunk beds!
I guess insufficient supply is the same as not having enough dumb people who aren't upside down on their mortgage
This is encouraging.
"after recession"
What if... stay with me here, what if the monetary response to the last recession prevented the recession from actually ending. Perhaps our wise overlords, the "smartest people in the room(TM)," don't actually know everything there is to possibly know about the system. Maybe the synthetic metrics we use to set bounds for recessions are imperfect and driving those metrics doesn't actually "fix" the "problem."
Crazy talk, I know, but it might be something to consider.
Actually, I believe this to be correct from the point of view of economic theory as well. Money printing structurally undermines the economy and encourages capital consumption and misallocation of scarce resources by dint of distorting economic calculation. This is something aggregate measures like "GDP" cannot possibly capture. In fact, what is in reality a loss to the economy, may look like a gain in terms of its contribution to GDP. Money printing does prevent a genuine recovery from taking hold. It encourages merely more exchanges of nothing (money from thin air) for something (real goods and services). Genuine wealth creators are facing a serious obstacle as a result, as they have to compete for scarce resources with those who have first dibs on newly created money.
BS ..pleanty of gold*
(* or paper equivalent or promise of future paper equivalent or "sure we gotcher gold" call us tomorrow)
Let us not forget a decade of middle class jobs crushed. I work auto finance and rarely see 2 plus years on the job.Loans are made for the most part on ability stability and willingness to repay the debt. You will not see these criteria a lot as the borrowers have weak jobs income and time on job. The loan criterias are very poor and going to get worse as we bounce on botom of the glorious recovery . Not to mention weak collateral houses being offered to the banks.
Due to the assets being way overpriced even good credit/job time buyers are wary buying a house for 500k thet is maybe worth 275k. Then pay 100k to rehab ....as each month goes by we now see that math is only manapulated to the extent it can be and then it must correct to the mean.
Well you sold everyone who wants one a home when you were giving liars loans
Everyone is sitting pat.
It is going to take a real steal of a deal and a no qualify loan if you want them to move.
And your crack shack 1000sf 500,000 dollar heaping turds are not going to cut it.
You are going to need millions of 100,000 dollar new builds with no bank lol.
Next generation is no help they are moving into mom and dads mc mansion when they pass.
Even in the best case scenario is which supply falls and demand rises...
How the FUCK is this a best case scenario?????? Outside of underwater home debtors and the Oligarch money launderers looking to unload higher prices helps NO ONE! Not the buyers and, if they think about it, not the sellers. Housing inflation is just more rentier enableing. Luckily the we're past the peak this cycle. Hopefully we can get back to some sane pricing so the mortgage market can un-seize itself.