The typical U.S. family has worked hard to improve its overall financial situation despite a massive loss of wealth during the recession, according to recent reports from the Federal Reserve and other organizations.
Most households have reduced their consumer debt loads and built up their savings accounts. They also have more disposable income to spend on large purchases than they did a few years ago.
These trends should have a positive impact on the U.S. housing market, experts say. It's doubtful that impact will be enough to offset the head winds that continue to plague the industry, though the latest data show encouraging signs for a housing turnaround.
In May pending home sales rose to the two-year high, the National Association of Realtors said. Single-family home prices broke a seven-month losing streak in April to lift 1.3%, in an S&P/Case-Shiller report.
"I don't think you'll see a moment where the housing slump is finished and you will see a huge spark," said Robert Dietz, an economist for the National Association of Home Builders. "It will be a slow and steady improvement to what would be considered long-term demand for housing construction. It will take years to get to that level.
Home Prices Hurt Net Worth Dietz's comments come on the heels of fresh reports on the fiscal state of the American family.
The Fed's Survey of Consumer Finances, out June 11, shows that the average American's median net worth fell from $126,400 in 2007 to $77,300 in 2010.
Net worth is the value of assets such as homes, bank accounts and stocks minus debts like mortgages and credit cards. The steep decline was mainly due to sagging home prices and stocks, experts say.
On a positive note, more recent data show the average net worth of families on the rise again. A separate Fed survey showed that total family net worth in the first quarter climbed 4.7% to $62.9 trillion, a gain of about 28% from the recession low. The increase was mainly driven by stock market gains.
Lately, builder stocks have been among gainers, with Standard Pacific Corp. (SPF), Ryland Group (RYL), D.R. Horton (DHI) and Lennar (LEN) the top-rated. IBD's Builder-Residential/Commercial industry group has vaulted to the No. 1 rank of 197 groups. It's up 27% so far this year.
Americans are paring credit card debt, which could help housing to a degree. The Fed's survey showed the proportion of families carrying a credit card balance fell to 39.4% in 2010 from 46.1% in 2007. For families with a credit card balance, the median fell from $3,100 in 2007 to $2,600 in 2010, a 16.1% decline.
"To the extent that it affects credit scores in a positive way, it can improve home sales," said Walter Molony, spokesman for the National Association of Realtors. "But we still need to see credit standards get back to normal. That's the biggest head wind we are facing.
Mortgages are being denied to people with FICO credit scores above those that got mortgages before the housing bubble years, says NAHB chief economist David Crowe.
Meanwhile, U.S. household balance sheets — the ratio of net worth to disposable income (NW/DPI) — are inching back toward normal levels after falling off sharply in early 2009 amid steep drops in housing prices and the stock market.
The NAHB says this ratio peaked at a value of 6.53 in early 2006. It then fell to 4.76 at the beginning of 2009. But as U.S. households have worked to repair their balance sheets, mainly by paying down debt and building savings, the ratio has returned to historical norms.
In the first quarter it stood at 5.34. On a four-quarter moving-average basis it was 5.18, slightly below the historical average of 5.23.
Savings And Spending Americans pinched pennies in the recession, stoking reserves, but now sock away less of what they make. The personal saving rate fell to 3.4% in April, from 3.5% in March and 4.8% a year ago, Commerce Dept. data show. It was well below the 6.9% of May 2009, in the recession.
At times of greater access to credit and comfort with spending, people have tended to save less of their income. The personal saving rate was 8.3% back in January 1959, and in recent decades has tended to read far under that. The rate measures money deducted from disposable personal income and set aside as a nest egg or for retirement.
"As the savings rate comes down it will free up money for consumption, which presumably will give some strength to GDP," Dietz said. "This is also good for housing to the extent that it frees up wealth to make down payments.
The challenge is getting a loan.
"There has been a shift away from homeownership and towards renting, which is obviously necessitated by the poor economy and reduced access to credit," said Scott Hoyt, senior director of consumer economics at Moody's.
Average mortgage rates are at historic lows but mortgage rates are "considerably higher" for first-time buyers, who are about 40% of the market, Dietz says.
The inability of young people to start their own households also weighs on the housing market.
"Population continued to grow over the last four to five years, but household formations did not keep up with the pace," Dietz said.
Of all household metrics, the one that could have the biggest positive impact on the housing market remains job growth, watchers say.
"We have a record high of housing affordability, but people are still cautious about buying homes," Molony said. "Job creation, and the confidence it gives to the market, is what we need more than anything else."