Equity, HPI Increases Help Boost Economy
The U.S. Gross Domestic Product (GDP) grew by 0.7%, on a seasonally adjusted basis, in the fourth quarter of 2015 after a moderate third-quarter increase of 2.0%. Year-over-year, real GDP grew 2.4%, the same amount as 2014 and 30 basis points (bps) higher than the average of 2.1% in the six years since the recovery began in 2010.
Housing – including the apartment market – is a strong contributor to the economy, both from investment and consumer perspectives. Residential fixed investment added 0.27 percentage points to real GDP in the fourth quarter and grew by 8.7% for the year. Personal consumption expenditures, which make up more than two-thirds of GDP, rose by an annual rate of 3.1%, the strongest pace since 2005.
The following chart graphs the growth in household owner equity and the annual growth in the house-price index from 1997 to the present. Home prices and owner equity are rebounding, providing benefits to the economy from the wealth effect (or increase in perceived wealth) that has helped spur consumer spending.
The All-Transactions House Price Index (HPI) from the Federal Housing Finance Agency (FHFA) tracks movement in home sales price information from mortgages sold to or guaranteed by Fannie Mae and Freddie Mac, as well as transaction information from county recorder offices and the Federal Housing Administration. The index swelled with double-digit growth during the housing bubble and plunged to average -4.0% losses during the Great Recession.
The HPI index has been increasing steadily since the middle of 2012. It grew by an average of 2.9% from the third quarter of 2013 to the fourth quarter of 2013, to finish 2013 with annual growth of 4.9%. Since then, the All-Transaction HPI has averaged 5.6% annual growth, with a tight range of 5.3%-5.8%.
Owners’ Equity in Real Estate, reported by the Federal Reserve System’s Board of Governors, has moderated after rebounding strongly post-recession. Growth in household equity increased by an annual average of 22.1% in 2012-2013, with annual gains of almost 30% by the middle of 2013.
Household equity growth averaged 13.5% from the first quarter of 2014 through the third quarter of 2015 as the rate of growth normalized, settling into a 10%-12% annual rate range in the past few quarters. Households are feeling better about their home wealth situation than they have since before the downturn, as household equity growth has returned to pre-recession levels, when it averaged 11.1% from 1997-2006. Household equity reported by the Fed stood at $12,365.7 billion in the third quarter of 2015, close to the $13,267.96 billion peak of the housing bubble in the first quarter of 2006.
The report was posted on AXIO Metrics Inc. and can be found HERE.
