We cannot stress enough about how important the housing market is to the U.S. economy.
According to an article by The New York Times published in April this year, if residential investment returned to its post-world war, long-term average of about 4.8 percent of gross domestic product, then overall GDP growth could jump to 4 percent — a level last seen in the 1990s. Such a growth rate would add 1.5 million jobs to the economy, bringing down the unemployment rate by a full percentage point.
Now picture this: at about 3.1 percent of GDP, investment in residential property in the U.S. remains smaller now than it was at any time since World War II. But five years after a housing-fueled financial crisis, the market seems somewhat content with this as a new normal. Even with the Federal Reserve engaged in aggressive monetary stimulus, residential investment still hasn’t returned to its long-term average. Tighter credit controls, relatively high mortgage rates, and increases in student debt have crowded out loan demand, and sustained increases in home prices are hurting demand.
According to data provided by National Association of Realtors, single-family home sales stood at 4.30 million in May, 5.7 percent below the 4.56 million pace a year ago. The median existing single-family home price is up 4.9 percent on the year to $213,600 in May and the median existing condo price has risen 6.6 percent to $212,300. The share of first-time buyers remains low at 27 percent, down from 29 percent in April last year.
An obvious outcome of the crisis has been that banks are extremely wary of borrowers with poor credit scores. The top 25 lenders accounted for 63.9 percent of all originations in the first quarter this year, the lowest level lowest in 14 years. The share is down down from 90.9 percent in 2008, data published by Inside Mortgage Finance showed.