Courtesy of Mish.
Home prices are nearly back to where they were before the crash. In some places, home prices are above where they were at the peak of the national boom.
Yet, the impact of rising home prices has not had the economic effect that economists expected.
The Wall Street Journal addresses the issue in Why the Housing Rebound Hasn’t Lifted the U.S. Economy Much.
I think the journal misses the reasons by a mile, as does Moody’s Analytics chief economist Mark Zandi. Let’s take a look.
Home equity has roughly doubled to $12.1 trillion since house prices hit bottom in 2011, according to the Federal Reserve. As a result, a key gauge of housing wealth—homeowners’ equity as a share of real-estate values—is nearing the point seen a decade ago, before the downturn.
Such a level once would have offered a double-barreled boost to the economy by providing owners with more money to tap and making them feel more flush and likely to spend. But today, that newfound wealth has had little effect on behavior.
Home equity’s effect on consumer spending is at its lowest ebb since the early 1990s, according to Moody’s Analytics. The research firm estimates that every $1 rise in home equity in the fourth quarter of 2014 would translate to about two cents of extra consumer spending over the next 1 to 1½ years. That was a third of the impact home equity had before the bust, Moody’s said.
Why aren’t homeowners feeling flush again? For one thing, since rising home prices over the past few years largely have made up for ground lost during the recession, many owners might not even realize they have equity to tap.
The bust looms large and home equity is seen as more fleeting than it used to be, said Fannie Mae chief economist Doug Duncan.
“Consumers are definitely more conservative financially than they were 10 years ago. They’ve seen that house prices can be volatile,” Mr. Duncan said.
Mortgage lenders also aren’t giving owners access to as much equity as they used to. While it was common during the boom to see loans that took out 100% or even more of a home’s value, now few will let an owner take out more than 80%….
