U.S. Housing Market Recovery Contributes Only Modestly to U.S. Economic Recovery: Barclays

on July 23 2013 11:54 AM
Home Sale
A single-family home is shown for sale in Encinitas, Calif., May 22. Reuters / Mike Blake

The notable housing recovery in the United States isn’t a “game changer” that substantially boosts economic growth in the United States over the next two years, Barclays PLC (LON:BARC) economists said on Tuesday.

“Under our forecast, it’s certainly a contributor to GDP growth and it supports the economy, but it doesn’t lift us into the 3 or 4 percent range that some people are looking for,” said Barclays Chief U.S. Economist Dean Maki, in a conference call with reporters.

“So in that sense, we wouldn’t consider it a true game changer that’s going to lead us to a 4 percent GDP outcome, for example,” he said, referring to the steady rise in home prices in 2013, among other key housing indicators.

In its latest research note from Tuesday, Barclays forecast a national home price increase of 9-10 percent in 2013, and 7-8 percent for 2014.

The bank recently upped its home price growth forecast. Sixteen straight months of home price appreciation, as measured by the Federal Housing Finance Agency’s index, culminated in continuing momentum in May, said the note.

Maki and Senior Barclays Economist Michael Gapen also said that rising 30-year mortgage rates, up from 3.5 percent in May to 4.5 percent in July, haven’t yet depressed demand for housing.

“Broadly speaking, housing remains affordable relative to pre-crisis levels,” said Gapen, who pointed out that mortgage rates averaged 4.6 percent in 2010 and 2011.

The economists said that lean housing inventories, alongside modestly better labor markets and incomes, will likely outweigh steep mortgage rates.

Still, they also warned that people may have overestimated the ability of greater household wealth to spur consumer spending.

For the U.S. housing recovery to contribute more robustly to broader economic recovery, residential investment needs to reach 20 to 30 percent growth levels, up from 12 percent in 2012, the economists said.

Remarkably robust home price gains have sparked some broad initial speculation about a U.S. housing bubble, though a Standard & Poor’s Financial Services LLP analysis dismissed that label last month, as too premature.

“Although double-digit gains [in home prices] are ultimately unsustainable, we may not have reached bubble status yet,” wrote S&P’s Megan Hopkins.

Hopkins pointed out that home prices were still 28 percent lower than their July 2006 peak.

“A lot of the easy lifting in the U.S. housing sector has been done,” said Maki during the call, noting that the initial bounce in home prices has taken off successfully.

But he cautioned: “Obviously, we have to keep a mindful eye on whether mortgage rates will continue to rise.” Barclays is maintaining a 2 percent GDP growth forecast for the next six months, with a 0.5 percent growth forecast for the just finished second quarter.

Housing starts in the U.S. fell 9.9 percent in June, below analysts’ expectations, and were led by a 26 percent decline in multifamily housing starts. Existing home sales for June also fell slightly, 1.2 percent from May’s figures. 

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