Naturally, even the grizzlies have been watching economic indicators that measure the market for housing "recovery" as talk of a possible rebound within the United States has now been confirmed by 3.5 percent growth in the third quarter. Existing home sales bottoming with a rapid increase in construction spending, and high-end incentives for those who are buying have sweetened the potential for another repeat of the housing recovery we all loved so well. However, there is a question of size, in relation to the potential for a recovery in the housing market, which could be different from 2004 a great deal, and could kill the lasting effects of a sluggish housing market for the wider economy. This article will try to look back and evaluate the American economy by result of the Housing Market from a historical and quantitative viewpoint. Price To Earnings Between the peak 6.5% Federal Funds rate in summer 2000 and the sudden cease-fire to 1% December 2003, when rates would would hover through Independence Day of the following year. Prior to the new millennium S&P 500 P/Es during the early forties and the subsequent share price slashing and slashing to 1961 to sight the Fed Funds Target below 2% and on up to 1954 for an overnight rate at or below 1 percent. Visit:- https://forbrugerhuset.dk/ We also forget earlier than 1995 that the S&P 500 had a last P/E ratio higher than 25 in 1930. however this fundamental figure remained over 20 throughout the duration of the recession before and until October of the year 2008. The American Dream Home Prior to the recession of 2001, there had been sweeping legislation to expand an "American dream" of owning one's own house to those with lower incomes. Mortgages were usually originated by third party shops and were purchased by GSE Fannie Mae and Freddie Mac mortgage strongholds. From 1996 onwards it was it was the United States Department of Housing and Urban Development (HUD) policy required that a certain percent of portfolios of loans held by Fannie and Freddie be sub-median income-producing products, which accounted for 52% of all GSE mortgages guaranteed in 2003. The introduction of Alt-A, interest-only, and ARM mortgages was an integral part of "lip-smacking" originators. They were later passed on and digested into the fortune 500 banks' balance sheets and as a Moody's/S&P rated package (i.e. CDS & MBS instruments). Housing Recovery 1.0 The first time around, households stopped short of purchasing new homes until the 30-year fixed rates ratcheted lower than 6% in January 2003 and remained there, tethered to near one percent Fed Funds rates until October of 2005. Prior to 2003, 30-year fixed rates had been close to 5.71% before 1971, the year at which the Freddie Mac data stops, however, it was reported in the New York Times vouched that this low rate hadn't previously been observed since the early 1960's. The subsequent rise in asset prices derived from cheap money and an insatiable demand for homes brought the economy back from recession at a a booming pace, as the resulting growth vector was based on the consumption of consumers. Fannie and Freddie The mortgages purchased by GSE Fannie Mae and Freddie Mac strongholds, provided "zero down" financing for less wealthy individuals wishing to own houses and sent out strong messages for hopeful politicians. Barney Frank went on record to support the HUD policy for higher risk mortgages backed by the GSEs. He also continued to stand with Fannie as well Freddie even after the CEOs supported the introduction of "Alt-A" products as a large part of their business. In the last week, the total amount of Government capital infusions at Freddie reached sixty billion, as Paul Miller of FBR Capital said "they will need [all] $200 billion in capital" that was promised to the company in the Treasury. What The Data Says GDP data shows that residential investment grew by about 7.35% per year for four years, before leveling down in the final quarter of 2005. The volume of capital that flooded the residential real estate market from 2002 to 2006 was such that the average four-year of residential investment jumped 22% from the prior four years. That's an increase that added $126 billion per year as of 2006. Since 2006, the amount of residential investment made by consumers has been declining by an average of 20% per year. The story of the crumbling housing market isn't alone and ominous, but by looking at recent events, we can figure out the effect that a rising housing market can make to GDP, and also its effect in and the U.S. economy as a in general. Fed Quantitative Easing (QE) Finding that the only solution to an over-debted marketplace was to move the burden of the current debt from private to public balance sheets and the U.S. assumed effectively all risk that led the large banks to be being shorted in first place. When the overnight target rate for banks to borrow within themselves fell to 0% , and LIBOR (London Inter Bank Overnight Rate) was high and high, the Fed was forced to buy physical assets and insuring the toxic loans that are still in default to this day, simply on the public's rather than private eyes. When the Fed had thrown its Kitchen Sink of QE at the problem , and it was announced that the green Obama administration declared that banks shareholdings would remain private, the financial stocks rebounded and the broad indexes were also able to recover.