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Tuesday, March 28, 2017

US Homeownership rates 50-year lows. What's to blame?




Last weekend the WSJ had a story on how the decline in homeownership rates to near 50-year lows is to blame, in part, for the sub-par recovery. “If the home-building industry had returned to the long-term average level of construction, it would have added more than $300 billion to the economy last year, or a 1.8% boost to gross domestic product, according to a study expected to be released Monday by the Rosen Consulting Group, a real-estate consultant. In 2016, total spending on housing declined to 15.6% of GDP…. compared with a 60-year average of nearly 19%. The share of spending specifically linked to new-home construction and remodeling likewise declined to 3.6% of GDP, just over half its pre-recession peak in 2005.” What’s to blame? Overly strict credit standards, themselves the outcome of overly loose ones that led to the 2008 crash. Also contributing is a shortage of skilled construction workers and regulations. The pullback has resulted in only the brave and really credit-worthy buying houses. The default rate risk has fallen to 5.1% from about 12%.


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