Confusing Signals Within Us Housing

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Confusing Signals within US Housing It seems hard to believe that over ten years have elapsed since the peak of the US housing market in the previous economic expansion. Residential construction as a percentage of real GDP reached a zenith of 6.2% in 2005 Q3. The ensuing contraction saw this share decline -60% to trough at 2.5% of GDP in 2010 Q3. The current economic expansion began in 2009 Q3, but the sheer magnitude of the collapse made it virtually impossible for any subsequent housing recovery to impart the same outsized contributions to headline GDP growth compared to the previous cycle. This has consequently played a significant role in restricting the ability of the economy to shift into a higher gear of growth during the current…show more content…
The availability of affordable housing stock may, therefore, be an issue. Furthermore, there is also the thorny issue of credit availability to consider. According to the Mortgage Banker’s Credit Availability Index, access to mortgage finance reputedly became more difficult in June for the eighth successive month, despite conventional mortgage rates remaining low. Meanwhile, the strength of new home sales in the high-end segment comes against a backdrop of a growing spread between jumbo (in excess of $417K) and conventional mortgages to their widest level since March 2011. Despite continued falling mortgage rates, the behaviour of this spread suggests risk aversion prevails amongst lenders. Rental Sector Inflation Produces Switch Incentive Owner-occupancy in the US peaked at 69.4% in 2004 Q2 and it has subsequently declined to 63.1% in 2016 Q2. There has, therefore, been a significant rise in the size of the US rental market during this period to offset the decline in owner-occupancy. Credit availability collapsed in the aftermath of the financial crisis, thereby forcing many would-be first-time buyers into the rental market or going back to living with their parents. The shift in housing-stock demand towards the rental sector has also had consequences: rent inflation has been rising. The latest 12-month change in rental costs, according to the latest consumer price index report, is +3.8%. Numerous observers, including myself, believe this official
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