Through the first half of 2018, existing-home sales are down just a tad, by 2.2%, while new home sales are up 7.4%. Home prices continue to move higher by 5%. Distressed property sales have fallen to historic lows, comprising only 3% of total sales in recent months. The one area of concern is increasing housing unaffordability.
Yet even with higher mortgage rates and higher home prices, the homeownership rate has been inching higher. After touching a cyclical low of a 63% ownership rate in late 2015, the rate increased to 64.4% in the second quarter of 2018 as three million additional households became homeowners in this time, bringing the total to 77.9 million. The total number of renter households has remained roughly the same at 43 million for the past three years.
With rising home prices and more homeowners, the aggregate owners’ equity in real estate is projected to grow by $1.4 trillion this year. That gain would bring the net housing equity (home value minus mortgage outstanding) to over $15 trillion. Considering it had been only $6 trillion a decade ago at the depths of the housing market downturn, the overall picture of the housing market is quite impressive.
Despite the mostly good trends, worries are developing as to whether or not the housing market has peaked and is ready for a slide. How steep and how fast? After all, existing-home sales have fallen every month in June, save one. Additionally, housing starts, traditionally a good leading indicator of potential economic recession, tumbled 12% in June from the prior month. Moreover, many Americans have painful, lingering memories of the home price crash, rising foreclosures, and 10 million net job losses from the housing market bust a decade ago. Naturally, they want to know if there is even a remote possibility of a housing downturn.
As Mark Twain is supposed to have said: there are lies, damn lies, and statistics. P.T. Barnum remarked there is a sucker born every minute, after witnessing so many eager to believe in circus tricks. In short, it is possible to deduce conclusions incorrectly, or be hypersensitive to small matters.