Monday, November 25, 2019

A Healthy Consumer Leading To Favorable Housing Market

Late last week the National Association of Realtors reported existing home sales of 5.46 million units at an annual rate. This number was slightly below estimates, however, it was higher than the previous month and was 4.6% higher on a year over year basis. As the below chart shows, this rate of sales appears favorable compared to the last several decades. What is important to note is units available have remained at a reasonable level as well, 1.77 million units. In other words, it does not appear housing is being overbuilt.

In an earlier post I highlighted the favorable position of the consumer as it relates to consumer debt and debt service capabilities. The favorable financial position of the consumer is also one factor contributing to a higher home ownership rate. This has positive implications for the economy due to the multiplier impact of housing. 

The graph of the increase in home ownership looks similar to the increase in the labor force participation rate as show with the maroon line in the below chart.

And finally, the data suggests the consumer is not using the growth in owner's equity in real estate as a piggy bank. The first chart below shows owner's equity as a percentage of household real estate values. The second chart shows revolving home equity loans as a percentage of the real estate equity.

It seems pretty clear the consumer is in good shape, the employment markets remain strong and housing is growing at an appropriately restrained rate as compared to the lead up to the financial crisis. Without getting into the detail in this post, it does seem business restraint is where much of the issues reside. A resolution of the trade and tariff issues would go a long way in reigniting a reasonable rate of economic growth in my opinion.

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