New data is good news for US homeowners
November 30, 2016
Homeownership rates in the U.S. continue to grow.
The last Friday in October brought some promising news for the American economy at large: Data from the U.S. Commerce Department revealed that the nation's gross domestic product output grew at a rate of 2.9 percent in the third quarter of 2016, after adjusting for seasonal fluctuations and inflation. This is a marked improvement over the first half of the year, when GDP tracked a growth rate of barely 1 percent. While hardly the bustling rate of growth seen in the last two years, or indeed for many years prior to the global recession that began in 2008, it brought a sigh of relief throughout the markets and gave further credence to the prediction that the Federal Reserve would raise interest rates in December.
"Growth in homeownership adds to evidence of economic resilience.”
In a similar vein, new data on homeownership rates in the U.S., released a day prior to GDP measures, could serve as another key piece of evidence in favor of a resilient economy no longer in need of cheap borrowing. The Census Bureau noted that the nationwide rate of homeownership rose to 63.5 percent in the third quarter of 2016, a rebound from a 51-year low point in the previous quarter. This included the formation of nearly 1.1 million new households, half of which were owners rather than renters. This also represented a significant improvement over the second quarter.
Along with higher rates of homeownership, other fundamentals across the real estate market point to greater confidence among consumers. Although home prices are back within range of those last seen in the 2006 peak prior to the housing market's crash, more young buyers are willing to abandon their apartment leases and make the investment in property. A report from the National Association of Realtors found 34 percent of homebuyers in September were first-timers, the highest portion seen since 2012. And average rents, which ballooned during a recovery when many were hesitant to opt in to a mortgage, have also begun to level off.
Long-term questions remain
All of this added up makes many economists optimistic on residential real estate heading into the new year. But some are unsure whether this represents a turning point or merely a stabilization in a longer downward slide. According to Joseph LaVorgna, Chief U.S. Economist at Deutsche Bank, one quarter of growth isn't all that positive in the grand scheme of the current situation.
“When you have something that has essentially been in decline for 10 years, one quarter isn't enough to tell me that we are even stabilizing,” LaVorgna told The Wall Street Journal. To his point, the homeownership rate remained lower than it was in 2015 at the same point. And when the figures are adjusted for seasonal variations, the change in the third quarter rate comes to around 0.3 percent, which isn't enough to be statistically relevant.
Still, many are of the opinion that modest growth, whether in real estate or the economy in general, is better than none. Much of the increase in GDP output over the last quarter came from consumer spending, according to The Journal. Overall consumer spending and investment in more expensive durable goods also points to greater confidence among the average household earners. At the same time, this data makes it likely that 2016 will mark yet another year in which the economy has not grown more than 3 percent, a fact that has been true since 2005.
It may still be rough going out there for both consumers and producers of any kind, but this new information may provide at least some reassurance that things are improving.