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Marketplace Morning Report

Housing market is one upbeat note right now

Mitchell Hartman Aug 25, 2015
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A key asset class for many American households that is not suffering from a crisis of investor confidence and wild volatility is the U.S. housing market.

After the recession, housing was the missing leg of the recovery, beset by depressed prices, extremely tight credit, millions of homeowners underwater and a large percentage of properties in default, foreclosure or bank-owned. Home construction ground to a halt. 

Now, housing is finally contributing consistently and strongly to overall economic growth. Home prices have been rising steadily — by 4 percent to 5 percent per year for several years, and decent houses (homeowner-owned, in good condition) don’t stay “for sale” very long in many markets.

Economist Christopher Mayer at Columbia University credits low mortgage rates and says the current stock market meltdown could actually help.

“The upside of global financial unrest is people rush to U.S. treasuries for safety,” says Mayer. The yield on the 10-year Treasury fell below 2 percent on Monday as the stock market plunged. That will tend to drive mortgage rates—which are already low, averaging under 4 percent for a 30-year fixed-rate mortgage right now — down even further.

“That really makes mortgage rates very attractive for people who do have a down payment and excellent credit,” says Mayer. “Potential homebuyers, and homeowners who want to refinance, all benefit — as long as the global unrest doesn’t translate into a recession.”

Builders are showing more appetite to break ground for starter and luxury homes, says economist Robert Dietz at the National Association of Home Builders.

“We expect additional growth as household formations recover, as renters become home buyers,” says Dietz. “And that will be helped by the good job numbers that we’ve been seeing, and that we expect to continue.”

On the other hand, rents have been going up as housing remains tight and few new single-family homes have been built (in historic terms) since the recession. So some renters are finding it hard to save for a down payment. Plus, in the hottest real estate markets, places like Los Angeles, San Francisco, Seattle, New York, Boston and Washington, D.C., sharply rising home prices are putting home ownership out of reach for many.

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