Housing Boom 2.0 (aka Housing Headwinds)

  • Posted on: 9 December 2015
  • By: admin

The following is an excerpt from our recent research piece "Housing Boom 2.0 (aka Housing Headwinds)" which can be found here: www.pathlightinvestors.com/housing-boom-20

In most cases, your home is your largest financial asset.  In the best of times, it represents shelter, security, equity, and flexibility.  In the worst of times, it can become the proverbial albatross and decidedly narrow one’s options.  Over the last roughly 15 years, we have experienced both of these feelings in the U.S.  We saw great wealth creation stemming from home prices rising fast from the late 1990s through 2005, and we have also lived through the bursting of that housing bubble and subsequent Great Recession.  

One of the main reasons why the Great Recession was so severe was that housing was at the epicenter.  Housing is directly linked to consumer confidence, and because we are a nation of consumers, housing is also tied to consumer spending and the health of the overall economy.  When home prices rise, one feels wealthier and, thus, feels more comfortable spending on other things.  Conversely, when home prices fall, consumers pull back and begin to delay purchases, even though the equity in their home is simply on paper and not “real” money.  In fact, according to Home Depot management, underwater homeowners spend an average of $1,000/year in their stores, while homeowners that have equity spend on average $3,000/year.  At 3-to-1, that’s a very powerful dynamic.