Growth in home prices, the main source of wealth for most Americans, is shrinking, fueling concern that the longest economic expansion in U.S. history is nearing an end.
Prices for residential dwellings rose just 3.6% in the 12 months through May, down from 4.1% in January, according to the property analytics firms CoreLogic, based in Irvine, California.
While home prices have increased a cumulative 50% in the 10-year recovery since June 2009, the firm cited the bond market’s declining confidence in the short-term economic outlook, as well as two drops of 10% or more in the S&P 500 within the past 15 months as signals of increasing gloom.
Additionally, the latest survey from the National Association for Business Economics, compiled by a panel of more than 50 forecasters, predicts overall U.S. economic growth will slow from 2.9% in 2018 to 2.6% this year and 2.1% in 2020.
“Recession risks are perceived to be low in the near term, but to rise rapidly in 2020,” said survey Chairman Gregory Daco, the chief U.S. economist at Oxford Economics. “Panelists put the odds of a recession starting in 2019 at 15%, climbing to 60% by the end of 2020.”
The data strengthen the case for the Federal Reserve’s monetary policy committee to lower interest rates, a move President Trump has been advocating, while creating hurdles for his 2020 reelection efforts. The White House’s protectionist trade policies, which have spurred comparable responses from both competitors and allies, are the primary driver of the concern, economists said in the survey.
For consumers, the bright side is that home prices are continuing to grow for now. The average sale price across the United States was $377,000 in the first three months of this year, a slight increase from the year before, according to data from the U.S. Census Bureau.
“We expect the housing market to enter a normalcy phase over the next 24 months,” said Ralph McLaughlin, deputy chief economist for CoreLogic. “With prices neither rising too fast nor too slow, and with a growing stream of young households looking to buy homes over the next two decades, the long-term view looks healthy.”
If the Fed proves unable to stave off a recession, even with growing odds of an interest-rate cut as high as 50 basis points by the end of this month, homeowners will still benefit from a decade of increasing property values, CoreLogic said.
Total home equity, the amount owners can expect to receive from a sale after paying off their own mortgages, has more than doubled to $15.8 trillion in the first three months of this year from $6.1 trillion at the start of 2009, CoreLogic found. Average equity per borrower rose $13,600 last year, down from a peak of $23,500 in 2013 though still far higher than during the immediate aftermath of the 2008 financial crisis.
“Home prices have increased steadily since 2011, creating record amounts of home equity and putting homeowners in a good position to weather future downturns,” said Molly Boesel, principal economist with the company.
That jibes with earnings reports from major U.S. banks, where consumer spending fueled growth in the three months through June even as businesses pulled back from major investments amid concerns that U.S.-led trade wars would curb profits.
