Eye On Housing
The balance sheet of U.S. households with real estate continues to improve – despite tight lending conditions – as increases in home prices continue. The real estate equity position of U.S. households (the difference between assets and liabilities) increased nearly 2.4% for the quarter according to NAHB tabulations of the fourth quarter Federal Reserve Flow of Funds.
The value household-owned real estate, including owner-occupied and second homes, totaled $20.6 trillion for the quarter. Total home mortgage debt outstanding stands at $9.4 trillion. The market value of real estate held by U.S. households increased $265 billion dollars during the quarter, while liabilities (home mortgages) remained virtually unchanged.
Because the figures are not adjusted for inflation, it is useful to also examine the owners’ equity in real estate as a percentage of household real estate. The ratio is calculated by taking the aggregate equity position divided by the market value of owner-occupied real estate held by U.S. households. The higher the ratio the more favorable is the financial position of U.S. households with real estate. The current reading of 54.5% represents a significant improvement over the 39.1% registered as recently as the second quarter of 2011.
The improvement in the balance sheet of U.S. households means fewer underwater homeowners, thereby unlocking housing supply and demand. This type of improvement in the balance sheet of U.S. households with real estate along with further improvements to job market could release pent-up housing demand.
This is nuts. Only a small fraction of houses change owners in a year – like 4-6%. The “values” are based on the sales prices for those homes – applied to all similar homes. That’s like a low volume stock. And the values are a function of the amount of debt for which a buyer will qualify – which on a 30 year loan at 80% LTV is a function of the interest rate. We are still in a period of historically low rates driven largely by central bank monetary policy, not the push and pull of investment and savings. So, it’s more like a low volume stock traded at high margin.