"Home sweet home" may be a needlepoint cliché hanging on a wall in many homes, but the phrase does capture a deeply felt sentiment in America. Here's a number to illustrate what I mean: The homeownership rate reached a record 68 percent of households last year—up from 64 percent a decade ago—as people took advantage of low interest rates to buy houses, town homes, condos, coops, and mobile homes. It’s not just the buying and selling of new and existing homes that’s sizzling. Walk the crowded aisles of Home Depot, Restoration Hardware, and Pottery Barn, and you’ll see the boom in home improvement and remodeling at work.
A vibrant housing market is a major reason why the latest recession was the mildest in the nation’s history. Of course, the question now is How durable is the market for shelter? It will slow down over the next year or so, especially since home price appreciation has spurted ahead of the growth in household income. Trees—or I should say two-by-fours—don’t grow to the sky. Interest rates are ticking up, and buyers are starting to resist high prices. A mild winter encouraged an unusual degree of real estate activity, and there will be some payback in the spring.
Still, the longer-term outlook remains healthy. One reason for optimism is demographics. New households are being created at a solid pace. Newly married couples are setting up their own nests. Divorced partners are looking for new digs. The number of single women with good incomes and careers buying their own home is skyrocketing. Immigrants are avid homebuyers. The population is aging, and middle-aged gray-haired folks are in their prime earning years with the bucks to own a place they can call their own.
The other reason for confidence is cash. Over the long run, home price gains largely track the growth in household income. The foundations of the U.S. economy are strong, and worker incomes are rising smartly. And when it comes to spending their hard-earned money, Americans love to pour it into housing and all the stuff that goes with ownership, from furniture to windows to stoves.
