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The U.S. Real Estate Market

The U.S. Real Estate Market

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Trends, Characteristics And Outlook


37% of all homes sold in the U.S. last year were purchased for investment purposes.

The homeownership rate in 2016 was the lowest in 50 years, as renting has been increasingly the more frequent choice compared to purchasing.

Were interest rates or inflation surprise to the upside in 2017, the negative price movements of the last months are likely to not only persist, but become more significant.

Following the debacle of 2007-2008, the U.S. real estate market has since been characterized by a significant improvement in prices, number of transactions and mortgage originations. This has been the result of an economic recovery that will be completing its 8th year in June 2017, coupled with the generally expansionary monetary policy of the Federal Reserve. To understand how real estate markets in 2017 and beyond will unfold, it is necessary to look at various determining elements, including 1) Mortgage originations 2) Economic growth 3) Housing affordability 4) Interest rate policy and 5) Construction activity. This article analyses what has been driving real estate in the years since the 2007-2008 financial crises, what are the current price trends and what can be expected this year and onwards.

The US Real Estate Market since 2007

The years 2007-2009 proved to be a historical event for American housing. The economic crisis, in great part caused by the proliferation of subprime mortgages, led to significant bankruptcies in the financial sector and a recession which shrunk GDP by 0.3% in 2008 and 3.1% in 2009. The effects on real estate prices was swift and significant, as for the first time ever the USA experienced a nationwide fall in housing prices:


The S&P/Case-Shiller U.S. National Home Price Index from a peak of 184.62 in July 2006 reached a nadir of 134.01 in February 2012, or a fall of 27%. Regional markets, in particular Las Vegas, Phoenix, Miami and California, were hit with bigger corrections, ranging from 40% to 65%. Construction activity was likewise hit, with housing starts falling from 1.49 MLN a month in March 2007 to below 0.5 MLN monthly in Q1 2009:



With the introduction of low interest policy by the Fed and a return of economic growth, the rebound in prices has been substantial and sustained. Nationwide prices have risen to an all-time high of 185.51 in January 2017, after eclipsing the July 2016 high for the first time in November 2016. This represents a gain of 38.4% from the February 2012 trough, with regional markets, mostly the hardest-hit ones of the Southwest and Southeast, registering even larger gains (Las Vegas: 72.1%, San Francisco: 82.1%, Miami: 58.3%).

In addition, global macroeconomic and political uncertainty has been a driver of US real estate purchases by foreigners, especially in major cities. In 2013 foreign purchases made up 7% ($92.2 BLN) of total residential transactions of $1.2 TLN, rising to $104 BLN in 2015. The latter number was more than 2.5 times the 2009 figure: 

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