Housing Heats up with a $1.3 Trillion Dollar Increase in Equity

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Housing Heats up with a $1.3 Trillion Dollar Increase in Equity

According to the most recent Financial Accounts of the United States, released This Week in Real Estate by the Board of Governors of the Federal Reserve System, the value of homeowner’s equity in real estate reached $15.4 trillion in the third quarter of 2018; that is up $1.3 trillion over the prior four quarters. Below are a few highlights from the first week of March that influence our business:

Housing Starts Heat Up In January, Climb Whopping 18.6%. Housing starts significantly heated up in January, according to the latest report from the U.S. Dept. of Housing and Urban Development and the U.S. Dept. of Commerce. Housing starts rose a whopping 18.6% to a seasonally adjusted annual rate of 1.23 million units, according to the report. “In January, the 18.6% monthly increase in housing starts reflects rising consumer sentiment and builder confidence,” First American Chief Economist Mark Fleming said. “Despite the headwinds, home builders are pushing through new construction projects.” Single-family production rose 25.1% from last month to 926,000 units while multifamily starts came in at a seasonally adjusted annual rate of 289,000 units. Overall permits increased 1.4% in January to a seasonally adjusted annual rate of 1.345 million. Lastly, housing completions in January were at a seasonally adjusted annual rate of 1.24 million, climbing 27.6% from December’s rate. Of these, single‐family housing completions were at a rate of 914,000 units and multifamily units came in at 327,000.

Increase in Housing Wealth. Homeowners’ equity in real estate improved as home prices continue to increase and mortgage debt expands slowly. The latest quarterly Financial Accounts of the United States, published by the Board of Governors of the Federal Reserve System, finds that the value of owners’ equity in real estate, the difference between the market value of owner-occupied real estate and home mortgage debt, rose by $1.3 trillion over the past four quarters and reached $15.4 trillion in the third quarter of 2018. On a nominal and not seasonally adjusted basis, the market value of owner-occupied real estate increased to $25.6 trillion totally in the third quarter of 2018, $298 billion more than the second quarter of 2018 and $1,526 billion more than the third quarter of 2017. Additionally, the improvement in home equity partially reflected slow growth in home mortgage debt. A decade ago, when the loan-to-value (LTV) ratio climbed to the highest level of 63%, the value of owners’ equity in real estate dropped to as low as $6.1 trillion in the first quarter of 2009. Between 2011 and 2018, the market value of households’ real estate rose by 59%, however, home mortgage debt increased by 3% over the same period. As a consequence, the LTV ratio decreased and the value of owners’ equity in real estate rose.

January Marks Seven Years of Annual Home Price Appreciation. National home prices increased 4.4 percent year over year in January 2019 and are forecast to increase 4.6 percent from January 2019 to January 2020, according to the latest CoreLogic Home Price Index (HPI) Report. The overall HPI has increased on a year-over-year basis every month for seven years (since February 2012) and has gained 57.3 percent since hitting bottom in March 2011. As of January 2019, the overall HPI was 5.6 percent higher than its pre-crisis peak in April 2006. Adjusted for inflation, U.S. home prices increased 3.7 percent year over year in January 2019 and were 13.1 percent below their peak.

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