U.S. Housing Stock Hits Record High in 2016

U.S. Housing Stock at Record High | GoRion Blog

The value of the U.S. housing market reached a new record in 2016, fully recouping the value lost during the subprime mortgage crisis.

The U.S. housing market reached a new milestone in 2016, as stronger job creation and razor tight inventories pushed stock value to the highest on record.

The total value of the U.S. housing stock reached $29.6 trillion in 2016, fully recouping the $6.4 trillion loss beginning in 2006 as the market collapsed, real estate website Zillow reported December 30. Home values appreciated 5.7%, or $1.6 trillion, over the year.

The Los Angeles and New York regions hold the highest shares of the country’s housing value, at 8.6% and 8%, respectively. The only other region with a total home value of more than $1 trillion is San Francisco, which holds 4.4% of the country’s total home value.[1]

To get a sense of just how vital housing is to the U.S. economy, consider that gross domestic product (GDP) was valued at $18.7 trillion in 2016. That means home values are more than $10 trillion higher than the total value of final goods and services produced in the economy. U.S. GDP is highest in the world, and is rivaled only by the 28-nation European Union.

Though rising, housing activity has struggled to keep the momentum alive. The recovery since the subprime meltdown has occurred in stops and starts, reflecting the “new normal” state of the economy[2] characterized by weaker overall growth and dependence on easy money.  While expert opinion varies, most expect housing activity to moderate over the next 12 months as affordability challenges weigh on new homebuyers and other segments of the market.

American wages are growing at half the rate of house prices, and that’s if we take the Labor Department’s December figures, which marked a big departure from the post-recession trend. Average hourly wages expanded at an annualized 2.8% in December. Though slower than the long-run average, that was the highest since 2009.[3]

Since the election of Donald Trump, mortgage rates have skyrocketed to more than two-year highs. A growing consensus forecasts 30-year rates to hover between 4.5% and 5% for the balance of the year.

After more than two months of gains, 30-year mortgage rates have declined in each of the last two weeks. The average commitment rate on a 30-year fixed-rate mortgage fell 8 basis points to 4.12% in the week ended January 12, Freddie Mac reported last week.[4] By comparison, 30-year rates hit a low of 3.42% last year.

Rising mortgage costs, combined with the record-high stock value, shows just how much Americans are spending on housing. Affordability challenges won’t impact stock values negatively in the short run as home prices continue to appreciate. Longer term, however, steady market growth could prove elusive.

Home sales defied expectations in November, but contract activity also weakened as a result of rising rates. December housing data, which will be released steadily throughout the month, will provide more insight into the market’s immediate response to higher costs.

[1] Zillow (December 30, 2016). U.S. Housing Worth Record-High $29.6 Trillion in 2016.

[2] Conor Sen (July 27, 2016). “A New Normal for the U.S. Economy: Slow and Steady.” Bloomberg.

[3] Sho Chandra (January 6, 2017). “U.S. Payrolls Rise 156,000 as Wages Increase Most Since 2009.” Bloomberg.

[4] Freddie Mac. Mortgage Market Survey.

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This article has been exclusively written for GoRion by...

Sam Bourgi

Sam Bourgi

Sam Bourgi has more than seven years of progressive experience in economic analysis, market research, public policy and the financial markets. He has a broad expertise in the financial markets, including commodities, real estate the foreign exchange. As a published author in both peer reviewed and industry research, Sam has covered topics ranging from mortgage-backed securities to consumer spending and labor. Sam's resume includes more than 40 government and industry publications, thousands of financial articles and hours of educational resources on personal finance and trading.

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