Thursday, January 5, 2012

Three Housing Charts

With some calling for 2012 to be the bottom in the housing market, below are three housing market charts based on data from the Fed's Flow of Funds report.  I tried to put together some less mainstream ratios for a broader view of the housing market.

#1 Total Value of US Residential Real Estate Relative to GDP

It's not obvious what the natural level for this ratio should be, but over the long term, housing probably shouldn't appreciate much faster than GDP grows.  This implies that over the long term the line should be flat rather than having any positive trend.  This is not a positive for housing price outlook.

#2 Mortgage Debt Relative to Total Real Estate Market Value

The amount of mortgage debt outstanding relative to home values is still near record highs.  Falling housing prices make de-leveraging more difficult.  It's tough to see credit growth in mortgages accelerating any time soon, which should continue to pressure housing prices.

#3 Real Estate as a Percentage of Assets

Housing doesn't represent quite as large of a portion of the US consumer's balance sheet as it has in the past.  Going forward consumer spending may be less sensitive to swings in housing prices.

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