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Hot housing market has fueled economic expansion—and inequality

CoreLogic report examined how overall economy has been tied to turnaround in housing market


The unprecedented economic expansion currently taking place in the United States, which just reached a record-setting 121st straight month, has had significant impacts on real estate development and urban growth across the country.

It’s taking place during parallel growth in the housing market, according to a new report by the real estate analysts at CoreLogic, a business intelligence firm. “The Role of Housing in the Longest Economic Expansion” examined just how much the overall economy has been tied to a turnaround in the national housing market, a decade-long recovery from June 2009, described by analysts as the “trough of the Great Recession.”

Housing comprises approximately 15 percent of the country’s GDP, and while its benefits haven’t spread to all income levels, it has been intertwined with the nation’s overall financial fortunes over the last decade.

“During the last nine years, the expansion has created more than 20 million jobs, raised family incomes and rebuilt consumer confidence,” says Frank Nothaft, CoReLogic’s Chief Economist. “The longest stretch of mortgage rates below 5 percent in more than 60 years has supplemented these factors. These economic forces have driven a recovery in home sales, construction, prices and home equity wealth.”

Reinforcing the value of homeownership

The amount of appreciation and wealth tied up in homeownership suggests that it’s just one of the many factors deepening divides in the U.S. economy at large.

From June 2009 to May 2019, home prices increased 50 percent, providing sellers with significant returns. At the same time rents for single-family homes, a growing portion of the home market, increased 33 percent, squeezing renters, many of whom are unable to achieve homeownership.

CoreLogic found that total home equity value nearly tripled from the first quarter in 2009 to the first quarter in 2019, rising from $6.1 trillion to $15.8 trillion. The average equity per borrower rose from $75,000 to $171,000 over the same period of time.

But not everybody has been able to cash in on these rising prices. Between Q3 2009 and Q4 2012, the number of owner households decreased 2.7 million while renter households rose by 12.9 million. CoreLogic found that the foreclosure crisis pushed former owners into rental housing, while first-time buyers delayed entering the home market. Between Q3 2014 and Q2 2015, there was additional big shift towards renting, with homeowner households decreasing by 1.1 million and renters jumping by 7.5 million.

These shifts meant that millions weren’t able to take advantage of significant home price appreciation; between 2012 and 2019, home values in states across the country showed positive growth ever year. In 2013 and 2014, in the midst of these shifts away from homeownership, home prices in California increased 18 and 10.8 percent, respectively, concentrating the rising value of the housing market in fewer hands.

Runway for recovery

The steep fall home values took in the aftermath of the Great Recession provided plenty of opportunity for the market to bounce back. CoreLogic found that the crash caused a huge hit in the company’s Home Price Index (HPITM), a broad measurement of prices across the nation. Between April 2006 and March 2011, the measurement dropped by a third.

The housing bust caused homeowners across the nation to see the value of their property decline precipitously, with many seeing their home’s value temporarily sink below its purchase price. In 2010, 25.9 percent of homes across the country showed negative equity. Today, just 4.1 percent of homes are underwater, and homes across the nation are once more serving as engines of wealth generation.

Part of this significant wealth appreciation came from speculation within a steadily rising market. In the first quarter of 2018, the recent high point in flipping activity, 11.4 percent of homes were bought and sold within a two-year period. In addition, supply constraints drove up prices, including steady increases in material and labor costs. Prices sit at record highs in many markets, which struggle with increasing unaffordability, though CoreLogic doesn’t believe that means most homes are overvalued. The company found that in May 2019, just 32.4% of the 392 metro areas analyzed were overvalued; compare that to the bubble of September 2006, where a similar analysis found that 70.2 percent of those markets were overvalued.

Is another recession around the corner?

Should owners be afraid of a lurking recession? CoreLogic says that while many economists have pointed to stock market stumbles as a sign of an imminent slowdown, the housing market is healthy, albeit losing some of its momentum.

Home price increases appear to be leveling off at the national level, rising just 3.6 percent year-over-year thus far in 2019. With mortgage rates at a two-year low and overall mortgage delinquency rate achieving a record low in April 2019 of 3.6 percent, there aren’t bubbles or warning signs on the housing market horizon.

“We expect the housing market to enter a normalcy phase over the next 24 months,” says Ralph McLaughlin, CoreLogic’s deputy chief economist. “With prices neither rising too fast nor too slow, and with a growing stream of young households looking to buy homes over the next two decades, the long-term view looks healthy.”

CoreLogic HPI Forecast expects a moderate, 5.6 percent acceleration in annual home price growth from June 2019 to June 2020. According to Molly Boesel, CoreLogic’s principal economist, there’s even enough value in homes to help homeowners weather the next downturn. Now, it just appears to be a question of helping more Americans take advantage of a much healthier market.