Forex News – Housing expected to be positive factor for US economy in 2014
January 24, 2014 2:15 pm
(click to enlarge)
Housing statistics are followed very closely by US economy-watchers. The state of the housing market is intertwined with the state of the US consumer, both with the wealth effect rising home prices generate and as employment and income prospects justify taking out a mortgage and buying a house.
In addition, the housing market is very important as it encourages construction, which in turn can have a significant influence on GDP. Residential construction has been adding around 0.3-0.4% to GDP growth in the United States in recent years so it has played an important role in the country’s economic recovery.
Existing home sales for December came out less-than-expected at a 4.87 million annual rate. Economists were expecting a 4.94 million figure. The miss was mostly due to the downward revision of the previous month’s figure to 4.82 from 4.90 initially released. Existing home sales did rise 1% against expectations of a rise of only 0.4%. It was the first month-on-month increase since July of 2013, pointing perhaps to stabilization after a difficult period.
As can be seen from the chart, existing home sales or resales of homes, peaked in July of 2013 (yellow line), most probably as a result of the spike in mortgage rates (blue line). Mortgage rates rose after Fed Chief Ben Bernanke made it known that the US central bank would soon proceed with tapering its monthly asset purchase program for US government and mortgage-backed bonds.
Analysts have said that the winter weather could also be weighing on housing activity (both sales and construction) in some regions of the United States and that activity should pick up in 2014. Analysts are also optimistic that as more jobs are created and household incomes rise during the New Year, the housing market will benefit.
On the negative side, mortgage rates will also have to be watched, because if they continue their rise they could create affordability issues for potential homebuyers. Currently a 30-year mortgage rate just under 4.50% is not a deterrent for purchasing a house in a historical context, even though this rate is higher than the 3.50% or so witnessed during 2012 and 2013.
Another potential problem could present itself if house prices continue their climb at an even faster pace, which would make houses less affordable. According to the government agency responsible for housing, home prices were up 7.6% year-on-year during November. Although house prices in the United States have rebounded strongly since they hit a low in 2011 (about 15%) and there are some concerns they could be getting fully valued, they are still considerably below their bubble-peak of 2007 (about 20%). Therefore according to other experts, the kind of overvaluation and froth that was present in 2007, is absent from today’s housing market.
To sum up, housing is expected to further support US economic activity in 2014 and housing statistics have been generally positive. This was despite some one-off factors that caused temporary disruptions and problems such as the government shutdown, the sudden spike up in mortgage rates and some unusual weather. One trend is that the focus of homebuilders has switched to multi-family homes as an area of growth rather than the more traditional single-family buildings. Overall, if the rise in mortgage rates is contained, unemployment keeps falling because of a stronger economy and house prices remain at reasonable levels, it will be another good year for housing.
(click to enlarge)
Housing statistics are followed very closely by US economy-watchers. The state of the housing market is intertwined with the state of the US consumer, both with the wealth effect rising home prices generate and as employment and income prospects justify taking out a mortgage and buying a house.
In addition, the housing market is very important as it encourages construction, which in turn can have a significant influence on GDP. Residential construction has been adding around 0.3-0.4% to GDP growth in the United States in recent years so it has played an important role in the country’s economic recovery.
Existing home sales for December came out less-than-expected at a 4.87 million annual rate. Economists were expecting a 4.94 million figure. The miss was mostly due to the downward revision of the previous month’s figure to 4.82 from 4.90 initially released. Existing home sales did rise 1% against expectations of a rise of only 0.4%. It was the first month-on-month increase since July of 2013, pointing perhaps to stabilization after a difficult period.
As can be seen from the chart, existing home sales or resales of homes, peaked in July of 2013 (yellow line), most probably as a result of the spike in mortgage rates (blue line). Mortgage rates rose after Fed Chief Ben Bernanke made it known that the US central bank would soon proceed with tapering its monthly asset purchase program for US government and mortgage-backed bonds.
Analysts have said that the winter weather could also be weighing on housing activity (both sales and construction) in some regions of the United States and that activity should pick up in 2014. Analysts are also optimistic that as more jobs are created and household incomes rise during the New Year, the housing market will benefit.
On the negative side, mortgage rates will also have to be watched, because if they continue their rise they could create affordability issues for potential homebuyers. Currently a 30-year mortgage rate just under 4.50% is not a deterrent for purchasing a house in a historical context, even though this rate is higher than the 3.50% or so witnessed during 2012 and 2013.
Another potential problem could present itself if house prices continue their climb at an even faster pace, which would make houses less affordable. According to the government agency responsible for housing, home prices were up 7.6% year-on-year during November. Although house prices in the United States have rebounded strongly since they hit a low in 2011 (about 15%) and there are some concerns they could be getting fully valued, they are still considerably below their bubble-peak of 2007 (about 20%). Therefore according to other experts, the kind of overvaluation and froth that was present in 2007, is absent from today’s housing market.
To sum up, housing is expected to further support US economic activity in 2014 and housing statistics have been generally positive. This was despite some one-off factors that caused temporary disruptions and problems such as the government shutdown, the sudden spike up in mortgage rates and some unusual weather. One trend is that the focus of homebuilders has switched to multi-family homes as an area of growth rather than the more traditional single-family buildings. Overall, if the rise in mortgage rates is contained, unemployment keeps falling because of a stronger economy and house prices remain at reasonable levels, it will be another good year for housing.
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