Housing in Canada: A Tale of Two Markets

Guest post by Norman Mogil


Canada’s housing market has diverged in recent years: Vancouver and Toronto joined other international real estate markets such as New York, London, and Sydney, while prices in other major cities remain subdued. Vancouver and Toronto housing now costs double that of comparable homes in Ottawa, Montreal and Calgary as the two most expensive cities continue to experience the fastest increase in prices and pull further away from all other regions in the country. Let’s look at the changes in buyers, housing stock, and credit creation that are behind this tale of two markets.

Table 1: Real Estate Prices in Canada 2014-2015

Source: Canadian Real Estate Assoc. July, 2015

Stable Housing Supply

Unlike the US, Canada has no recent history of overbuilding. The ratio of housing starts to household formation is roughly in balance at 1.2 starts per formation, which has allowed Canadian construction to avoid the boom/bust cycle often associated with housing. Furthermore, stable housing supply reduces the risk to lenders and has encourages continued orderly expansion of the housing stock. Since housing supply has not driven climbing prices in Vancouver and Toronto, we focus on housing demand below.


Population Changes

Canada is a "young" country. The working population is one of the most important components of housing demand. Chart 1 compares the working age population (ages 15-64) as a percentage of total population. Canada’s working age population is nearly 69% of the total population and exceeds the ratio in the US and the average for all OECD countries. Furthermore, the population aged 25-34 is growing at a rate of 2% y/y ; the age group of 30-34 is growing at even a faster rate of 2.6% y/y. These groups underpin the market of first-time buyers ^1.

Chart 1:  Working Age Population as a % of Total Population

Source: OECD

Immigration accounts for about 75% of the population growth in Canada . Over half of Canada’s 260,000 annual immigrants make their way to Vancouver and Toronto alone. Recent work by CIBC reveals that immigrants aged 25-45 years have dominated the estimated 770,000 non-permanent Canadian residents. Moreover, immigrants living in Canada for more than 10 years have a higher rate of home ownership than native Canadians, thereby exerting more demand pressure ².

Table 2: Housing Starts in Canada 2010-2014

Source : Statistics Canada

Credit-driven Growth

Total mortgage lending has increased by 30% since 2010, primarily attributable to commercial bank lending. In the past 6 months, the banks have eased off on this growth pattern, but levels remain relatively high. As non-bank funders also aggressively move into this market, both builders and buyers are finding easy financing.

Chart 2

Source : Statistics Canada

Credit growth has not been isolated to mortgages. Statistics Canada shows that household debt including mortgages, consumer credit, and non-mortgage loans reached 163 per cent of disposable income as of June 2015. The IMF warns that “although household debt levels appear to have stabilized recently, they have increased to historical highs in the past decade... one of the highest among countries of the OECD.” Just as easy credit allowed Canadian households to enter the housing market and push prices higher, there is now concern that high debt poses the risk of a major housing market correction. By way of comparison, US ratio of debt to real disposal income reached 172% in 2014. Canadians are less indebted than their American neighbours.

Debt should always be measured against assets to get a measure of the degree of risk assumed (Table 3). In real terms, the growth of household debt did accelerate to an annual average rate of 5.3% in 2000-2011, compared to 3.1% , in the 1980s, and 3.7%, in the 1990s. However, the ratio of debt to assets has barely changed. In the 1980s it stood at 16% and now it averages 17.6%. Overall, the accumulation of household debt has kept in line with the growth of household wealth . Put differently, Canadians have not increased their leverage from prior decades in any meaningful way. Finally, given that current interest rates are at a historical low, debt service is within a manageable range. And, with no anticipated interest rate increases, these debt levels do not pose a threat to the housing sector.

Table 3: The Growth of Household Debt and Assets 1980-2011, Canada *

The Influence of Foreign Capital

Canada continues to benefit from inflows of international capital. Investors from Hong Kong and mainland China have been buying up real estate in Vancouver and Toronto, contributing to the bidding wars in both cities. While there are no official data documenting purchases by non-residents, realtors have provided statistics and anecdotal evidence to support this argument. We must caution the reader that much better data and greater research are needed before any conclusions can be reached regarding the role of Asian investors in influencing housing costs in Canada.


More Fuel is Added

The pressure on the housing market in both Vancouver and Toronto contradicts Canada’s oil-driven economic slowdown over the past six months and has complicated the Bank of Canada’s recent monetary policy decisions . The central bank has cut rates twice this year. In its latest move, the BoC stated:

“Of particular note are the vulnerabilities associated with household debt and rising housing prices. And we must acknowledge that today’s action could exacerbate these vulnerabilities.”

The Bank recognized that, although its policy moves were necessary to stimulate overall growth, it runs the risk of further inflating Vancouver and Toronto housing markets.


Is There is a Correction Coming?

The rise in house prices has prompted many analysts to say that a correction is inevitable. Simply put, they argue that growth in market demand is unsustainable and thus a major correction must follow. Before arriving at that conclusion, it is important to bear in mind that both cities feature:

1. Diversity in employment and industrial makeup, so that they can weather a downturn in oil and other commodities , as they did in the oil crash of mid-1980s;
2. Population growth will continue at the current rates and there is no sign of change in government policy regarding immigration flows;
3. Interest rates not only remain low, but show no sign of increasing given the current economic environment, eg 5 year mortgage rates are 2.50%;
4. And, both cities face land scarcity, especially in the core areas.

Conclusions 

1. Canada has a split housing market; Vancouver and Toronto, overwhelming skewed the average home price in the Canada; looking at the rest of Canada, prices are stable and values remain relatively low.

2. The growth in housing stock has risen to match the growth in population and household formations; there is a relatively good demand/supply balance in place.

3. Household debt measured against the growth in assets indicates that the ratios today are within the historical averages.

4. There is concern, however, should the Canadian economy weaken further and employment and growth deteriorate that housing prices and values could be at risk.


 _____________________
¹ Robert Kavic, Business in Canada, April 14, 2014
² Benjamin Tal and Andrew Grantham CIBC, “Many Faces of the Canadian Housing Market” June, 2015

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Looming rental crisis in the United States

The United States is not building enough homes to meet the nation's housing demand. It's difficult for many to accept this fact given some of the over-building that took place during the housing bubble. However that wave peaked around ten years ago and residential construction had since declined to historically low levels. This unprecedented weakness in construction activity has persisted over the past 6-7 years, with only limited signs of recovery. Here are two data points:

1. Residential construction spending as a fraction of the GDP remains suppressed.

2. Housing starts also remain extremely low, especially considering US population growth.  This market has never recovered after the housing crisis - even to "pre-bubble" levels.

Source: Federal Reserve Bank of St. Louis

Part of the issue of course is the nagging tightness in the mortgage market, as homeownership rate continues to decline.

This is funneling more people into the rental market, rapidly tightening the availability of rentals across the United States.

Some view this as a bicoastal issue - of course the rental market is tight in Silicon Valley or New York City. Unfortunately that is not the case. Here are the vacancy rates in Ohio and Michigan for example.

Limited apartment construction activity is clearly taking place around the country, particularly in major cities. However, just as the case with new houses and condos, rentals are being built for "high-end" clients. In most major cities, new rentals cost materially more than the average for those markets.

Source: WSJ

At the same time wage growth in the US remains subdued. In spite of a slight improvement last month (to 2.3% YoY), rental costs continue to rise faster than wages. The chart below describes the situation over the past five years.

This leaves an increasing number of households "behind", with millions more now spending over half of their income on rent. Unless construction ramps up materially over the next five years, the gap in the chart above will widen to crisis levels, putting significant pressure on family formation, raising homelessness, and dampening economic growth.

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A look behind the headline housing starts report for the United States

As discussed in yesterday's post on residential construction, today's report on US housing starts indeed showed significant improvements.

Investing.com

However, this is only part of the story. The number of housing starts for single-family units remains to a large extent range-bound (see chart). A great deal of the new housing growth instead is coming from multi-family construction (see chart). And that's driven by the rapidly rising demand for rental housing in the US, as shortages become more pronounced (see post). Rental vacancies are now at the lowest level in 17 years and falling.

This demand is also visible in the latest report on inflation, which came out today as well. Rent expenses are now growing considerably faster than the CPI as well as US wages - a dangerous trend.

Rent inflation vs. Core CPI

The trend of rental units dominating housing starts growth is likely to continue as homeownership rates decline. Adequate supply of new multifamily housing will be critical in years to come.

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Signs of improvement in residential construction

Despite tepid wage growth in the US and Dodd-Frank-driven headwinds for mortgage lending (see post), two signs point to moderate improvements in residential construction.

1. The homebuilder optimism index recovered more than forecast.

2. Lumber futures have risen materially from their lows in June.

Sep lumber futures contract (barchart.com)

At this point it is difficult to say whether this construction improvement relates to new home purchases or new rental units. Given the looming rental market shortage in the US (see post), we are certainly going to see more apartments built in the near-term.

And while nobody expects a major boom in construction employment across the country, there is definitely room for improvement.

US construction jobs

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Watching for signs of US housing market activity

The US housing market remains sluggish, as wages, at least at the national level, have not kept up with the recent price appreciation (see post). The reason for these higher prices is that housing inventories remain tight, particularly in the more desirable areas. A great deal of the inventory has been picked up by "cash buyers" that include domestic and foreign investors (including professional investment firms). These investors accounted for over 40% of the homebuyers in the first half of 2014.

Source: Capital Economics

The hope is that with this tight inventory levels we will see more residential construction, even if a great deal of it will go to meet rental housing demand. The recent recovery in lumber futures suggests that construction, which has stalled recently, may be improving again.

Sep-14 futures (source: Barchart)

Another indicator suggests that US homeowners are taking advantage of the tight inventory. The prepayment speeds on 30Y FNMA MBS securities with low coupon have picked up again. The 2.5% and 3% 30Y MBS contain mortgage pools of loans with interest that is significantly below current mortgage rates. Therefore prepayments in these pools mean that these homeowners are selling their homes (nobody would want to refinance into a higher rate mortgage). Sales were expected to pick up this time of the year, but some analysts have been a bit surprised at how quickly prepayment speeds recovered.

Source: JPMorgan

Both of these signs point to improving activity in the US housing market. It remains to be seen however whether this is sustainable or simply a temporary response to lower mortgage rates.

30y fixed mortgage rate (source: bankrate)

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Rental home shortage is America's next housing crisis

The US is facing a new housing crisis. No, it has nothing to do with subprime mortgages or bloated home equity balances. This time the nation is dealing with shortages of rental housing, a problem that will become increasingly acute in years to come and may result in a material drag on economic growth.

Americans are simply not building enough homes to accommodate the population's needs. The number of housing units completed per capita in the United States remains a fraction of historical averages. The slight improvements from the lows of 2011 have barely scratched the surface.

Similarly, in spite of recent increases, residential construction spending as a fraction of the GDP remains at the lowest levels than at any time since WWII.

At the same time demand has been on the rise. As an indicator, the chart below shows Google search frequency for rent related phrases.

Apartments & Residential Rentals - related searches (Source: Google Insights)

The myth out there is that this problem is somehow limited to some of the coastal areas of the United States - NY, Florida, California, etc. It is not. Just take a look at the rental vacancy trend in the Midwest.

The last point represents Q1, 2014

This shortage is of course translating into rising costs of shelter across the country. The overall shelter CPI is headed toward 3% and the rate of just rental cost increases is even higher. It is materially above the overall CPI rate and expected to rise further.

This trend, combined with massive amounts of student debt (see discussion) will be increasingly taking a bite out of consumer spending. The percentage of "housing cost burdened" households (those who spend more than 30% of their income on shelter) has been rising rapidly.

JCHS (Harvard) - The recent deterioration in rental affordability comes after a decade of lost ground. The share of cost-burdened renters increased by a stunning 12 percentage points between 2000 and 2010, the largest jump in any decade dating back at least to 1960. The cumulative increase in the incidence of housing cost burdens is astounding. In 1960, about one in four renters paid more than 30 percent of income for housing. Today, one in two are cost burdened. Even in 1980, following two decades of worsening affordability, the cost-burdened share of renters was just above a third.

Given such demand, why does residential construction remain so tepid? Since 2008 the acquisition, development and construction (AD&C) lending has been too restrictive to accommodate the rising demand. That in turn has led to insufficient numbers of developed lots for construction.

US News: - According to a recent National Association of Home Builders industry survey, 59 percent of builders reported the supply of developed lots on their areas was low or very low. This is a significant increase from a similar survey undertaken in September 2012. In fact, the 59 percent response is the highest rate recorded since 1997, when this first survey question was first posed.

Other reasons include highly restrictive zoning rules, as existing homeowners limit new construction in order to boost their property prices. Whatever the case, residential construction is running at half the level of longer term housing demand. And while the nation can get by for now, consider the situation 5-10 years down the road.

Economists, politicians, and the media continue to focus on slow home sales as an indication of weak housing markets. But they are simply "fighting the last war". The looming crisis is not about how often homes change hands, but about the shortage of rentals and the rising cost of shelter that the new generations of Americans will increasingly face.

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"Generation rent" raising demand for multifamily housing

One of the reasons we continue to see negative signals from the US housing market (see post) is the weakness in the single family housing sector. The strong housing report yesterday was driven by surging apartment construction. That trend is expected to continue.

Reuters: - The housing starts report suggested building activity would likely continue to rise for some time as permits to build homes jumped 8.0 percent to a 1.08-million unit pace in April, the highest since June 2008.

Permits for single-family homes, however, rose just 0.3 percent and continue to lag groundbreaking, suggesting single-family starts could decline in the months ahead. A survey on Thursday showed confidence among single-family home builders slipped to a one-year low in May.

In contrast, permits for multi-family housing soared 19.5 percent. Multi-family permits are running well ahead of starts, which could indicate delays in getting projects started. Permits for buildings with five or more units were the highest since June 2008 - [see Twitter post]

Americans are adjusting to this new rental culture, as the number of single family housing starts falls to new lows relative to the total new housing construction.

1-unit housing starts as a fraction of total housing starts (source: St. Louis Fed)

To be sure, home construction in the US is still far below what the nation will need in years to come and it's only a matter of time before the US faces the same type of housing shortage that exists in the UK (see post).

Housing starts as fraction of US population (source: St. Louis Fed)

But the so-called Generation Rent is in no hurry to go out there and get a mortgage and is willing to pay up for the mobility offered by rentals (forgoing mortgage tax deduction). Given the demand, apartment owners on the other hand are not shy about getting a mortgage for rental properties. The proportion of multifamily mortgages continues to rise - a trend that started in 2006.

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From our sponsor:

US housing sector stalling

The US housing recovery continues to face headwinds. Here are the key factors contributing to weakness in the sector.

1. We've had a sharp decline in housing affordability due to higher prices and higher mortgage rates. The decline in mortgage rates recently should help somewhat, but buyers remain cautious.

Source: Deutsche Bank

2. Banks have tightened lending standards. The important trend here is the tightening in the "nontraditional" mortgages (ignore the "subprime" component - it's not a meaningful portion of the market). If you don't fit into the traditional mortgage "box", getting a loan is now more difficult.

Senior Loan Officer Opinion Survey on Bank Lending Practices (Federal Reserve Board)

3. Household formations have stalled. It will be difficult to get the demand going until growth in households picks up again.

Source: U.S. Census Bureau

This weakness in housing is already reflected in the equity markets as shares of homebuilders underperform.

Orange=S&P500 ETF, Blue=Homebuilder index ETF (source: Ycharts)

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Weak US household formation pressuring housing markets

Housing remains a weak spot in what otherwise looks like a fairly broad improvement across the US economy. The new home sales report today for example came in materially below expectations.

Signs of this soft patch in housing were already visible over a month ago when lumber futures experienced a significant decline (see chart). Home prices have risen quickly over the past couple of years, and that combined with higher mortgage rates creates a bit of a sticker shock for many potential buyers. Furthermore builders continue to complain about construction costs and tight credit. The biggest issue however remains household formation. As of the end of last year for example, the number of American households was not growing at all (see chart). This is likely due to record low marriage rates as well as a slew of other factors. Whatever the reason, household formation needs to stabilize before we see stronger results in the US housing market.

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Key trends in US mortgage markets

The recent increase in long-term rates is causing major changes in the mortgage markets. Here are some key trends:

1. Refinancing activity continued to decline through Q3. The proportion of mortgage applications for purchase vs. refi has doubled this year (and that's not because of higher demand for homes).

Source: DB

2. A number of lenders who focused on mortgage refinancing such as US Bank, Provident Funding, and Flagstar are struggling (although the largest banks such as Chase and Wells seem to be less affected). This may result in an increase in the number of riskier mortgages.

DB: - Lenders who specialized in refinancing transactions have experienced dramatic loss of market share and either will have to become more competitive on rates in growth sectors such as ARMs to regain market share or loosen credit standards.

3. While a larger number of buyers now prefer ARMs, the dynamic within the fixed rate universe is a greater demand for 30-year mortgages vs. 20 or 15. That's because the monthly payments on 30-year mortgages are lower (slower principal repayment) and buyers are looking for the cheapest solution.

DB: - As interest rates have risen and volume has dropped, the product mix has shifted sharply ...  30-year mortgages are much more popular with homebuyers—more than 50% of 30-year mortgages are used for purchase transactions but less than 20% of shorter-term mortgages. As a consequence, the share of 15-year mortgages fell from 20% in September to 17% in October as the share of 30-year lending rose to 63% from 59%. Meanwhile, the ARM share has doubled to more than 5% since June as HARP’s share of lending has fallen to 3% from a high of 7% this spring.

4. As a result, MBS bond markets are taking a hit in the form of lower volumes. The sharp decline in refinancing activity has reduced the need to issue new agency mortgage bonds. New issuance is the lowest in years.

Source: SIFMA (note: this includes CMBS but the bulk of the activity is agency MBS)

Similarly, trading volumes in MBS have dropped off to new lows.

Source: SIFMA

Here is a summary on US mortgage markets from Freddie Mac (who, just as Fannie Mae, has been issuing fewer bonds):

Frank Nothaft, Freddie Mac Chief Economist: - With the close of 2013 will also come a major transition in the housing finance industry. For the first time since 2000, we're going to see the mortgage market dominated by purchase activity as the refinance share drops below 50 percent. And with mortgage rates rising, we're also going to see the home-sales gains as well as the impressive house price growth begin to moderate to more sustainable levels.

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The dark side of rising rental costs in the US

One factor that may continue to provide tailwinds to US housing recovery is the rental market. Rents are rising faster than inflation, widening the spread between housing costs and wages.

Bloomberg: - For households with children, rising housing costs, elevated unemployment and stagnant earnings are increasingly placing rent beyond reach. The housing slump made matters worse as former homeowners turned into renters, increasing competition for available apartments.
...
Nationally, the average hourly wage among renters is $14.32 this year compared with the $18.79 needed to afford an apartment at a fair-market rent, as defined by the U.S. Department of Housing and Urban Development, without spending more than 30 percent of income on housing, a National Low Income Housing Coalition report found in March. The $4.47 gap this year is wider than the $4.10 differential in 2012.
...
Median household income has fallen every year for the past five after adjusting for inflation, with Americans earning no more than they did in 1996, according to data from the Census Bureau. The share of people making less than $15,000 climbed to 13 percent of the population in 2012, from 10.9 percent in 2000, and the share making less than $35,000 expanded to 35.4 percent from 31.4 percent.

According to the Fed, the ratio of rental obligations to disposable income is now at post-recession high. Growing rental costs are driven by declining vacancies and lower housing inventory in the US. Of course the recent rise in interest rates has not helped matters either. Higher rates raise the break-even rent level for landlords who finance their properties.

Source: CIBC

While this development is encouraging some renters to plunge into homeownership, giving a boost to home prices, it is also displacing low income families. This trend is quite troubling.

Bloomberg: - The number of children without a home increased by an estimated 2 percent, according to NAEH, a Washington-based non-profit focused on policy and research on the needs of homeless people.
...
The share of Americans experiencing “deep poverty,” living at less than 50 percent of the $23,492 poverty line for a family of four, climbed to 6.6 percent in 2012 from 4.5 percent in 2000, based on Census Bureau data released last month.

That may increase the pipeline of Americans heading toward homelessness. There was a 9.4 percent increase in the number of poor people “doubled up,” or living with friends or family due to economic need, between 2010 and 2011, based on the NAEH 2013 report. Crowley said 2011 is the latest year for which usable data on doubling up is available.

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4 economic indicators signal that US growth is off to a weak start for the quarter

Those hoping for the US economy to accelerate in the second half - and many economists made that call early in the year - will be disappointed. While employment metrics seem to show steady improvements, putting the Fed on the "taper path", the economy is facing some increasing headwinds. Here are four indicators signaling a tough road ahead.

1. The rate of improvement in the housing sector is slowing. Weak new home sales number was the first indication that not all is well with US housing (discussed here), but now home price increases (HPI) have leveled off. This trend may actually take MBS off the table for the Fed's taper, leaving the central bank to focus on cutting back only the treasury purchases.

Source: TD Economics

TD Economics: - To make matters worse, the rapid recovery in the housing market seems to have hit a snag. Rapidly rising mortgage rates resulting from taper-talk may already be showing up. Both new and pending home sales have declined in July. Moreover, measures of home price growth failed to accelerate in June, although it remains unclear whether due to higher rates or increasing inventory of properties for sale.

2. Personal income growth remains weak.

NY Times: - After rising 0.3 percent in June, income was held back in part by steep government spending cuts that reduced federal workers’ salaries. Overall wages and salaries tumbled $21.8 billion from June, with a third of the decline coming from forced furloughs of federal workers.

3. Growth in consumer spending (which represents over 70% of the GDP) has slowed as well.

WSJ: - A paltry increase in consumer spending in July showed the U.S. economy starting the second half of the year on a bumpy path, creating another risk to growth along with overseas turmoil and Washington budget battles.

U.S. personal spending on everything from cars to clothing rose a mild 0.1% in July from a month earlier, the weakest since April, the Commerce Department said Friday. Overall incomes improved slightly, but wages and salaries fell 0.3%, pushed down by federal spending cuts that spurred furloughs across the government.

Americans' willingness to open their wallets has been a key driver of the recovery for years, despite still-high unemployment and stagnant wages. Better-than-expected growth in the second quarter—the economy expanded at a 2.5% annualized pace—was largely due to strong consumer spending, which represents more than two-thirds of demand in the U.S. economy.

But the latest data showed that consumers entered the third quarter with a thud.

4. As discussed earlier (see post), consumer confidence has peaked in the second quarter and has been declining steadily since. What's particularly troubling is that according to Gallup polling right before this weekend, economic confidence index suddenly dove to the lowest level since the sequester went into effect in March. The uncertainty related to the Syrian crisis and potential US military involvement is one potential explanation.

Source: Gallup

Add to this the potential shock associated with another fiscal showdown brewing in Washington and we are looking at subpar growth in the United States in the second half of the year.

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Ecstatic homebuilders having trouble selling homes - what's wrong with this picture?

Today's news of a sharp decline in new home sales has left many economists scratching their heads, trying to understand the trajectory of the US housing market. And here is what they are struggling with:

With the homebuilder survey showing tremendous optimism while new homes not selling well, there is clearly a disconnect. Just as other economists, Goldman's research team is having a tough time reconciling the two. GS also points out that new home sales represent a somewhat more timely indicator than the existing home sales number - which was quite strong in July (see this post).

GS: - Based on contract signings rather than closings, new home sales are a slightly more timely indicator of housing activity than the stronger-than-expected July existing home sales data released earlier this week. The recent weakness is concerning in light of the rise in mortgage rates in recent months and drop in new purchase mortgage applications. However, the weakness in new home sales stands sharply in contrast to the NAHB homebuilders index, which points to more favorable prospects for housing starts and new home sales in coming months.

In spite of the conflicting data, Goldman's research team decided to downgrade its forecast for the 3d quarter GDP to 1.8%.  Long-term interest rates may be having a far deeper impact on the economy than previously thought.

It is worth mentioning that this forecast does not bode well for the success of the Fed's latest round of monetary easing:

• Including the current quarter and Goldman's forecast above, the 4 quarters since the start of QE3 have generated 1.2% average annualized GDP growth in the US.
• The 4 quarters immediately prior to QE3 have generated 3.2% annualized GDP growth.

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The US housing recovery has not produced the economic boom some had expected

Many economists have been expecting the housing boom to provide a visible lift to the US economy. So far the results have been underwhelming. In spite of strong homebuilder optimism (see post), housing starts remain subdued. The momentum we saw in late 2012 has dissipated and last year's forecasts (for example Goldman and ISI Group) turned out to be too optimistic.

The direct impact on jobs has been almost nonexistent, as the number of residential construction jobs has barely budged (still below the level it was in January of 2010).

The hope of course is that in addition to the jobs created in construction, the indirect impact of the housing market improvement would provide a much needed boost to the economy. But the so-called "housing services" sector (mostly rent and utilities), which is typically 12-13% of the GDP, grew by about 0.7% over the past 4 quarters. That's roughly the growth rate of the US population. Clearly the "knock-on" effect of the housing recovery isn't there just yet - other than more people in the US resulting in more rent and utilities payments...

There is another trend that is probably not helping with conversion of new home activity into the economic growth some were expecting. Multi-family units represent an increasing proportion of total housing starts.

It is possible that because these units are more likely to be rentals, the "multiplier effect" of housing just isn't as strong. Homeowners (living in a single-family unit) will probably spend considerably more in house-related purchases than multi-family unit renters (or even condo owners).

This combination of factors has so far resulted in a disappointing impact of the housing recovery on the US economy. Some economists are saying that the best is yet to come. Perhaps.

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