- 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%.
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.