What impact does the housing market have on the economy and financial planning?

Housing is deeply connected to financial planning since, for most families, a home is their largest asset, biggest monthly expense, and primary source of debt. Understanding how housing affects the economy can help inform long-term financial decisions.

Here are some key points to consider:

• Home prices remain historically strong, with the Case-Shiller index around record levels, far above the 2006 housing bubble peak. While each local housing market is different, these national averages can help us understand the impact on the economy, especially as interest rates remain high.

• The 30-year fixed mortgage rate is around 6.3%, well above the 3% lows seen in 2020-2021 and above the 4.6% average since 2008. This makes homeownership more expensive than just a few years ago, and also means that some homeowners are “locked in” since buying a new home would mean giving up their existing low rates. This is one reason the supply and transaction volumes of existing homes remain lower than many would like.

• It’s no surprise that real estate is one of the largest assets for most households, across all generations. Older generations, however, have had time to pay off their mortgages, and may even have multiple properties. For younger generations, mortgage debt is one of the largest sources of monthly payments, raising their debt service levels. So, across all generations, how investors manage these assets and debts is an important component of financial planning.

• Still, high home values support consumer confidence and spending, a factor that is sometimes referred to as a “wealth effect.” On the other hand, elevated housing costs have kept the “shelter” component of inflation stubbornly high, making it harder for inflation to return to the Fed’s 2% target.

The included chart tracks housing starts, a measure of new construction activity. Activity has picked up in response to high home prices and reduced inventories, but is still well below their post-pandemic peak and historic highs.

Despite significant volatility in financial markets this year, the housing market remains relatively strong. Keeping a long-term perspective and understanding your full financial picture remains the foundation of sound financial planning.

Disclosure:

Advisors associated with Spartan Wealth Management may be either (1) registered representatives with, and securities offered through LPL Financial, Member FINRA/SIPC, and investment advisor representatives of Spartan Wealth Management; or (2) solely investment advisor representatives of Spartan Wealth Management, and not affiliated with

LPL Financial. Investment advice offered through Spartan Wealth Management, a registered investment advisor and separate entity from LPL Financial. Registration does not constitute and endorsement by the Commission, nor does it imply a certain level of skill or ability.

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