Recent Research Speculates On The Real Effects Of The Rebounds In The Stock And Housing Markets On Household Wealth

Wednesday, February 06, 2013 08:17
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Recent Research Speculates On The Real Effects Of The Rebounds In The Stock And Housing Markets On Household Wealth

Tags: economic indicators | Economic Outlook | mortgage debt

How much value has been returned to US companies trading on US stock exchanges since stocks hit their lows four years ago? Think $10 trillion.
 
But has that figure along with the resurgent housing market made Americans feel wealthier?

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The next difficult-to-fathom figure is the $11 trillion that equities lost from October 2007 through March of 2009.
 
Housing prices took a slide during that period, too. Now, homebuilders are backlogged and the Dow Jones Industrial Average is approaching a new high.
 
Housing is said to be the largest single wealth effect in the economy. It carries multipliers in the form of bolstering consumer confidence from the creation of more jobs and also from the likelihood that homeowners who refinance will redeploy the savings by purchasing a new car or remodeling.
 
When housing prices are falling, consumers pull back their spending and job growth slows or can even reverse.
 
Another ripple effect is banks’ greater willingness to lend. Data from Bloomberg shows that housing has made significant contributions to each economic recovery since 1950.
 
Fringe benefits from the rebound in construction during the current recovery are expected to contribute .75% to the economic rebound this year.
 
A recent paper by Karl Case and Robert Shiller, the fathers of the Case Shiller Home Price Index, notes that changes in housing values increasingly have greater impact on household consumption than changes in stock market values.
 
They predict the virtuous cycle from actual and anticipated gains will increase consumer consumption by $80 billion this year.
 
Research from Citigroup counters, saying that home prices only accounts for 10.5% of consumer wealth and never rose above 22% even during the housing bubble.
 
PIMCO’s Mohamed El-Erian says that the recovery in the equities markets doesn’t mean much without the underpinning of a vibrant economy, low unemployment, and financial stability.

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