LendingTree
Housing Overview

Key data about the housing market and its role in the economy and a look at major housing indicators you should know about. 

Privacy Secured  |  Advertising Disclosures
 

LendingTree Housing Overview

Key Data

  • Housing Stock: In the 2018 there were 139 million homes in the US of which 79 million were owner-occupied, 43 million were rented giving a homeownership rate of 64.8%. 16 million homes were vacant.
  • Home Sales: 627,000 new homes were sold in 2018 and the much larger existing homes market saw 5.34 million sales.
  • Home Prices: New homes were sold for a median of $322,100, they are typically larger and have more amenities than existing homes which had a median of $257,200. For the entire owner-occupied housing stock, the median value was $193,500
  • Housing Starts: 1.25 million units of new homes were started in 2018, these are often significantly less than new home sales as sales exclude multi-unit homes and starts include home that are built but not sold.
  • Homeowners Equity: Homeowners had $15.5 billion in equity at the end of 2018, gaining over $9 billion in equity since 2011.
  • Delinquency Rate: The final barometer of the health of the housing market, its at a 12 year low of 2.83%.

Overview

It seems you can never escape news stories about the housing market. But why exactly is housing so important?

Beyond offering shelter, housing represents a very large part of the U.S. economy. When measured as a part of gross domestic product, housing has averaged about 15% of the nation’s economy over the past 10 years. In 2018, that equated to $2.8 trillion in economic activity.

Housing’s contribution to the economy can be split into two parts. The first is the construction of new homes and renovations to existing properties. This represents work done on single-family homes and multifamily properties, whether they are rented or owned. Only the final sale of the property gets included in GDP. The sale of existing properties is not a part of GDP, but the commissions and brokers fees paid to facilitate the transaction are. This component is about 3% of GDP. However, it warrants a lot of attention as a volatile component that often suffers when the economy slows.

The second component of housing’s economic impact is something called consumption spending on housing services. This includes rent payments and utility payments by both renters and homeowners. Since homeowners don’t pay rent but consume a “service” by living in their houses, economists assign a value to that service known as owner’s imputed rent. Though lesser-known, this “services” component is actually a larger part of the overall economy, at about 12% of GDP.

Housing also adds indirectly to GDP. Moving from one home to another often leads to other types of economic activity, such as buying large appliances and furniture. Less tangibly, a house is often the most expensive asset for many Americans — meaning that home values affect the confidence people have in their financial situation. This makes the economy sensitive to home prices, as this confidence impacts household spending on all types of products. This is known as the wealth effect.

Finally, home purchases are usually financed by mortgages. Residential mortgages make up the largest loan market in the world. It’s fantastic when things are going well, but can be disastrous if too many people default on their payments. The financial losses affect not just the lenders, but the entire economy, as it did 10 years ago during the financial crisis and subsequent recession.

Housing Stock and Homeownership

Recent trend

The housing stock generally increases over time, given that the U.S. population is increasing. In 2018, there were 139 million homes in the U.S. Of those, 79 million were owner-occupied and 43 million were rented — putting the homeownership rate at 64.8%.

A steadily growing economy and the rise of millennials as the largest homebuying group has helped the homeownership rate increase since 2016, but it remains well below the highs from the housing bubble of the mid-2000s.

In 2018, 16 million homes were vacant. The rental vacancy rate was 6.6%, a 34-year low, and the homeowner vacancy of 1.5% is just above the lows of the past 20 years. These low vacancy rates push up both home and rental prices, creating problems of housing affordability.

What is it?

Housing stock refers to the total number of homes in the United States. This figure is split into rental and owner-occupied homes, which gives us the homeownership rate. There are also measures of how many homes are vacant.

Why it matters

When compared to population, the housing stock gives a measure of the amount of new homes that may be needed in a given area. The vacancy rate is also an indicator of demand and influences home prices.

The homeownership rate is broadly viewed as one measure of the health of the economy, as homes have historically been a means to generate and store wealth. However, this view was challenged during the financial crisis.

Home Sales

Recent trend

A total of 619,000 new homes were sold in 2018, the most since 2007. However, the growth rate slowed to just 1.0% from 2017’s 9.3%, and sales were at risk of turning negative going into 2019 as mortgage rates rose through the middle of 2018. The recent decline in interest rates should support growth, and sales have begun to reaccelerate.

The much larger existing homes market saw a 3% decline in 2018 to 5.34 million. Sales have rebounded in recent months and could have a sustained recovery if interest rates remain low.

What is it?

Home sales measures the number of homes sold. This data is split into new and existing home sales. Existing home sales are about five times more numerous than new sales.

Why it matters

Buying a home is the largest transaction most people make in their lifetime. Therefore, home sales are an important indicator of the health of the economy. There are also numerous auxiliary transactions that occur when somebody buys a home, from hiring a real estate agent to taking out a mortgage.

The home sale is also often a catalyst for other purchases. These can be both physical goods, such as furniture and household wares, or services, such as movers and painters and other household vendors. In that way, a large number of jobs can be linked to home sales. Finally, existing home sales release some equity for the seller which can lead to additional economic activity.

Home Prices

Recent trend

Home price growth has been slowing since early 2018. While some be concerned by this, we view this deceleration in prices as a positive development. We need some of the price momentum to ease, as it has been unsustainable — with prices outstripping wage increases since 2012 by 51% to 19%.

What is it?

Home price data averages transactions that occur for both new and existing home sales. These tend to be quite volatile as the mix of homes, the time of year and interest rates levels can create swings from month to month.

Other measures, such as the Case-Shiller Home Price Index, apply statistical smoothing techniques to create indices that capture the overall evolution of prices for the entire housing stock.

Why it matters

Home prices track the value of the largest asset for many Americans. As such, they have a significant impact on the confidence consumers have in their personal financial condition and the state of the economy. As most homes are financed, home prices also affect the health of the financial system as they are the largest type of collateral backing debt in the economy.

Housing Starts

Recent trend

The U.S. saw 1.25 million new homes units started in 2018, slightly up from 2017’s 1.2 million — but widely viewed as a disappointment, given inventory shortages in the housing market.

Housing starts have been weak since the financial crisis, and some causes for today’s tepid numbers can be traced back to it. Before the crisis, many builders constructed speculative homes, anticipating future demand. Many of these aggressive builders exited the business, leaving behind a more conservative industry. In addition, builders have struggled with high costs of materials and labor.

What is it?

Housing starts measures the number of new homes that begin construction in a month. It is split into single-family and multi-family components.

Why it matters

Housing starts represents a critical economic measure that signifies months of upcoming economic activity and output. It is also a volatile number that can indicates whether the economy is strengthening or weakening. Starts affect the overall inventory of homes which influences home prices and affordability.

Homeowner’s Equity

Recent trend

Homeowners had $15.5 billion in equity at the end of 2018, gaining over $9 billion in equity since 2011. The persistent increase in home values since 2011 has been accompanied by a smaller increase in mortgage debt following the housing bubble. However, the bubble give caution about how ephemeral home equity can be.

What is it?

This represents the portion of the value of the housing market that is does not have a debt held against it. It includes the total value of homes that are held free and clear (meaning there’s no mortgage), plus the difference between the value and loan balance for mortgaged homes.

Why it matters

Equity represents the homeowner’s portion of the value of their home and can be a large component of their wealth. The homeownership rate is higher than the share of Americans with retirement accounts, and homeowners can often access the value in their homes through home equity loans or home equity lines of credit.

Even without borrowing against the equity, homeowners’ equity affects confidence in their financial profile, a phenomenon known as the wealth effect. This leads them to either spend more or be more conservative with other expenditures in their lives.

Delinquency Rate

Recent trend

The ultimate barometer of the health of the housing market, mortgage delinquencies are at a 12-year low of 2.83%. The strong increase in home values coupled with a robust labor market since the end of the last recession mean that households are well positioned to make their mortgage payments. The household mortgage debt service ratio, which measures the proportion of disposable personal income households use to pay their mortgages, is the lowest since data tracking began in 1980.

What is it?

The delinquency rate on home loans measures the proportion of mortgage borrowers who are late on their monthly payment. Rates are published for 30 days late, 60 days late, 90 days late and for loans entering and involved in foreclosure. Foreclosure can only begin after payment is 120 days, but the lender has discretion after that as when to begin the process.

Why it matters

A foreclosure is a tragedy for the family involved and also has significant economic implications. For homes with a mortgage, foreclosure is how banks enforce their right to the collateral, the home, if payments are not made. This involves significant cost to the lender and often a loss on the loan. As such, foreclosures transmit risk into the financial system. When too many foreclosures occur at once, financial institutions can find themselves at risk of becoming insolvent.

Foreclosures can also be self-perpetuating as they lower the value of homes around them. This can lead to fewer loans issued and a general economic slowdown, a severe version of which occurred with the financial crisis.

Click here to view additional mortgage statistics.