Americans Have Received A $1 Trillion Wealth Boost Thanks To The Housing Comeback

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Photo: 401(K) 2012 / Flickr

The case could easily be made that the comeback in US housing is the most bullish trend in the world right now.After all, there aren’t that many medium-terms trend to like around the globe, and housing represents the biggest asset of the world’s wealthiest group (Americans).

So how big has the surge been?

UBS’ Maury N. Harris writes:

Looking to this year when home prices have started to recover, in the first three months of 2012 there was an around $0.4 trillion (non-annualized) recovery in residential real estate wealth as reported in the Fed’s Flow of Funds statistics. And based on the further rise in the Core Logic home resale price index, in Q2 there probably was a just over $0.2 trillion additional gain in households’ real estate wealth. The estimated cumulative around $0.6 trillion turnaround in real estate wealth in H1(12) following last year’s $0.5 trillion decline represents a net upswing of just over a trillion dollars in the change in real estate wealth.

The big question then is: What does that mean for actual economic activity?

Traditional calculations suggest the impact is still modest

How much would a $1 trillion swing in the change in housing wealth influence consumer spending? Housing economists have estimated that a 10% change in housing wealth can affect personal consumption expenditures by between 0.3% and 1.8%, with 0.8% being in the middle of this range. Per these estimates, a $1 trillion or around 6% change in housing wealth could raise annualized personal consumption expenditures by around 1⁄2 percentage point. However, we view this estimate as probably too high, since the historical wealth effects were estimated over a time span including many years when there was significant home equity extraction via cash out refinancing and home equity loans—two financing avenues that are far more restricted in the current post housing crash environment.

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