Housing Is the Decade's "New Economic Powerhouse," Fueled by Growing Consumer Spending, Investment and Equity in Homes, Fannie Mae's Chairman and CEO Says
|January 25, 2002|
WASHINGTON, DC ? Continued strong growth in consumer spending, investment and equity in homes will fuel housing's best decade in history and further stimulate and strengthen the economy, said Franklin D. Raines, Fannie Mae's Chairman and CEO, in a speech to the National Press Club.
In thespeech, titled "The Economic Power of Housing ? The Decade of the American Dream," Raines presented the key reasons why, in spite of the recession in 2001, housing had its best year in history ? softening the impact of the downturn ? and why the outlook for housing remains bright.
"This is not your father's housing sector," Raines said. "While the market was transfixed by technology, housing was transformed into a real economic powerhouse."
"As good as housing was in the last decade, the best is yet to come," Raines said. "If we stay on the path of progress, keep low-cost housing capital flowing to more people and more places, and harness the power of housing, this could well be the Decade of the American Dream."
Describing the new economic power of housing, Raines noted that while production declined for many industries in 2001, housing cushioned the overall economic impact by posting its best year in history, with housing starts up by 4 percent and home sales up by nearly 6 percent. The surge in mortgage refinancing also provided a $50 billion economic stimulus.
"If housing had declined as it usually does in a recession, the decline in GDP would have been five times worse, and 350,000 more Americans would have lost their jobs," Raines said.
Describing why housing is so economically powerful, Raines noted that housing is the number one consumer product, the number one consumer investment, and one of the fastest growing markets in America.
"Families spend a quarter of their income ? a total of $1.7 trillion last year ? on buying, fixing, furnishing, and maintaining their homes, more than they spent on food, clothing and education combined," Raines said. "Homes yield the greatest return on investment ? over the last ten years, the average stockholder earned $23,000 in the stock market, while the average homeowner earned $44,000 in home equity."
The housing sector also has become more economically powerful because of fundamental changes ?"two evolutions and a revolution" ? in the housing finance industry during the 1990s, Raines said:
These fundamental improvements in the flow and supply of housing capital will be crucial in the coming decade, Raines said. Key economic and demographic drivers of housing demand (growth in households, homeownership rates among underserved groups, home values and consumer use of equity wealth) will cause a surge in consumer spending and investment in housing, and demand for capital to finance this investment, he said.
"If you look at the key drivers of housing, consumers are going to double their investment in housing before the decade is over, and they will need twice as much capital to fund that investment," Raines said.
"Those who have the job of raising and supplying housing capital are going to have to double their capacity," Raines said. "Fannie Mae is just one of those suppliers, but we are committed to doing 20-30 percent of the job."
With this growth in consumer need for housing capital and the risk of housing shortages if supply fails to meet demand, Raines offered a test for proposals to change the housing finance system. "The simple test is, would this proposal help more Americans to own a home, and fuel the power of housing?"
Source: Fannie Mae