Economic Commentary: Long-Term Real Estate View
Last week we focused upon the employment situation in the long-term — looking back at 2016 and for the past eight to ten years. If there is one economic indicator which rivals the importance of the employment situation, it is real estate. Looking back, the real estate boom contributed to the great economic times we enjoyed just over a decade ago. And it was the collapse of that boom that sparked the financial crisis and the great recession we faced. Though the full year numbers have not come in for 2016, there has been plenty of news regarding the recapture of the real estate equity America lost during the great recession.
“The total value of U.S. housing stock grew to a total of $29.6 trillion in 2016, reaching this all-time high.”
The numbers are not even across the country, but in general, real estate has finished the year at an all-time high in many areas. According to Zillow, the total value of U.S. housing stock grew to a total of $29.6 trillion in 2016, reaching this all-time high. Zillow also reports that the housing stock showed an increase of $1.6 trillion from 2016, a 5.7% increase in value. These are pretty impressive numbers, but when you factor in that these numbers represent a “break even” since 2016, the data takes on a different meaning.
Fortunately, we don’t want to stop there when looking at the performance of real estate. For example, in 1986, the average existing home price in the United States was $98,500. In November of 2016, the average was $276,800. This means that the total appreciation rate has been close to 300% over 30 years, or about 6.0% per year compounded annually. Of course, the rate of return is much higher when we figure that the purchaser of a home did not typically pay cash for their home in 1986, and nor would they today.
The bottom line? If someone bought a home 30 years ago, and paid their regular 30-year loan payment over 30 years, they would now have an asset of approximately $300,000 free and clear — even if they only invested $10,000 to purchase that home. Thus, a short-term view of real estate is not necessarily the best view, as real estate is a long-term investment for the average homeowner.
The Weekly Market Update
Rates were lower for the second week in a row to open the year. For the week ending January 12, Freddie Mac announced that 30-year fixed rates fell to 4.12% from 4.20% the week before. The average for 15-year loans decreased to 3.37%, and the average for five-year adjustables moved down to 3.23%. A year ago, 30-year fixed rates were at 3.92%, 0.20% lower than today’s levels.
Attributed to Sean Becketti, Chief Economist, Freddie Mac. — “After absorbing a mixed December jobs report, the 10-year Treasury yield fell 8 basis points. The 30-year fixed rate moved in tandem with Treasury yields falling 8 basis points to 4.12 percent, the second decline since the presidential election. The December jobs report showed 156,000 jobs added, barely meeting many experts’ expectations, while wage growth was at the high end of expectations at 0.4 percent. If strong wage gains persist, they may push inflation and interest rates higher.”
Note: Rates indicated do not include fees and points and are provided for evidence of trends only. They should not be used for comparison purposes.
This article is authored by one of the Wicker Homes Group preferred lenders, Reggie Maddox of McLean Mortgage. To send him or us a loan application or inquiry, please visit our Finance page.
Reginald D. Maddox
Sales Manager | Sr Mortgage Advisor
NMLS ID: 1072553
Direct: (571) 238-1592