Real Estate: Is The Housing Boom Here?

Wages StallThe housing boom should be here, it really should. All the historic notions associated with a prosperous and solid real estate marketplace seem to be in place.

If you think about real estate you know that to have a booming market we need low interest rates. Well, we have that. Rates have been below 4 percent the entire year, according to Freddie Mac. We are skidding just above the historic low rates seen in 2012, so if there is to be a real estate expansion we have the right rates in place to be successful.

Combine low rates with lots of demand and the market has been good for lenders. We’re seeing bigger loans and solid lender profits.

“Full-year 2015 net production profits were 52 basis points, 18 basis points higher year over year, with higher production volume,” said Marina Walsh, Vice President of Industry Analysis for the Mortgage Bankers Association.

We’re borrowing more, a measure of public confidence as well as an expanding economy.

“Average loan balances for this sample grew 7 percent from 2014 to 2015 and have grown 22 percent since 2008,” said Walsh.

Real Estate & Jobs

Then, of course, we need jobs. The government says the current unemployment rate was 5.0 percent in March, a number which should make everyone happy.

With low rates and lots of jobs we should see a good sales pace. The National Association of Realtors said March existing home sales were pegged at an annual rate of  5.33 million units, a very good number.

“The median existing-home price for all housing types in March was $222,700, up 5.7 percent from March 2015,” said NAR. “March’s price increase marks the 49th consecutive month of year-over-year gains.”

How much better can we do? That’s more than four years of annualized home price growth.

It’s not just NAR, the government’s Federal Housing Finance Agency says that “from February 2015 to February 2016, house prices were up 5.6 percent.  The index levels since October 2015 have exceeded the prior peak level from March 2007.”

By all the usual measures we seem to be doing well, and yet there doesn’t appear to be a lot of housing excitement. There’s no oomph in the marketplace and not a lot of joy.

So what’s missing?

The numbers above are real but they mask a substantial problem. We have not had a paycheck recovery. The Wage Growth Tracker from the Federal Reserve Bank of Atlanta shows what’s happening:

Wage Tracker

You can see the problem. The real estate market is showing signs of recovery but that recovery is not inclusive, it has not been extended to the millions of households where income never returned to the heights seen in the 1990s. If we want a real housing recovery we need a broader rise in household income, a rise which simply includes more of us.

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