Tuesday, May 6, 2014

A stalled housing boom

“After a decade of boom-bust-boom, the U.S. housing market is going down-hill just when many economists thought it would be heading upward.  Sales of previously owned properties tumbled 7.5 percent in March from the previous year, to the slowest pace in 20 months, while purchases of new houses sank 14.5 percent from February.  And applications for mortgages to buy homes are indicating fading demand during what is typically the busiest season for deals….

“Housing’s woes are slowing the economic recovery.  Residential investment, including construction of single-family and multifamily homes, residential remodeling, and brokers’ fees, accounted for 3.1 percent of gross domestic product in the fourth quarter, less than half the peak contribution of 6.6 percent in 2006, according to an April 28 report by Capital Economics.  ‘The apparent crumbling in the housing recovery has, at least temporarily, removed a valuable support to GDP growth,’ the report said….

“The National Association of Realtors’ Housing Affordability Index, which compares household incomes with home prices and mortgage rates, fell 16 percent in the 12 months through February, the most recent month from which data are available….

“…The average rate for a 30-year fixed-rate mortgage was 4.33 percent in late April, according to Freddie Mac, up a full percentage point from a near-record low last May.  That raised the cost of a $200,000 mortgage 13 percent, sending monthly payments to $993 from $881….

“Nationwide, investors accounted for 17 percent of home purchases in March, the lowest share for that month since the National Association of Realtors began tracking the figure in 2008.  Meanwhile, the share of Americans who own their own homes was 64.8 percent in the first quarter, down from 65.2 percent in the previous three months, the Census Bureau said on April 28.  The rate is the lowest since the second quarter of 1995, when it was 64.7 percent.”  

[Bloomberg Businessweek, May 5-11]