Lost in the constant and unending stream of national headlines last week was a troubling bit of economic news that could negatively impact each and every one of us. The Mortgage Bankers Association reduced its 2014 loan origination forecast to $1.05 trillion - some 40 percent below the $1.8 trillion in loan originations generated in 2013. If the downgraded MBA estimate proves accurate, this is especially troubling news for America's economic recovery. Here's why.
The National Association of Home Builders tells us that homeownership contributes roughly 18 percent to our gross domestic product through private investment and consumption spending on housing services. Gross Domestic Product is a key metric used in measuring the strength of our national economy. A sharp decline in GDP will likely be accompanied by a sharp decrease in jobs. Consider this -- the National Association of Realtors tells us that each home sale adds about $60,000 of economic activity to our national GDP number. They also conclude that one new job is created in America for every two homes sold. Just think about this for a moment. Sure, U.S. productivity has seen significant gains in recent years, but GDP still bears a strong positive correlation to employment -- higher GDP tends to mean there are more people working, and vice versa.
A rapid decline from $1.8 trillion in mortgage loans actually produced in 2013, to the $1.05 trillion revised MBA forecast for 2014 mortgage origination is a reduction of more than $750 billion. These are huge numbers to be sure. So let's look at this another way -- $750 billion is roughly 4 out of every 5 dollars spent in the $856 billion Recovery Act many economists credit with helping us to narrowly avert economic disaster in 2009 and beyond -- gone in just a single year of a broken American housing market. $750 billion in lost loan origination volume means literally millions fewer homes being sold or refinanced. And the thought of literally millions of home sales (or refinances) disappearing from our national economy in a single year means an unbearable number of American jobs could also disappear.
We can all agree that homeownership has an aspirational quality to it. The notion of the American Dream is constantly referred to in discussions surrounding the importance of homeownership and its many positive public outcomes. What is too often left to implied logic is the fact that homeownership is a fundamental ingredient in a strong American economy. We literally cannot have a fully functioning economy that creates jobs on a consistent and ongoing basis while leaving the residential housing market in a state of disrepair.
Homeownership makes for stable communities with the sorts of tax revenues necessary for good schools and municipal services. Homeownership means more spending on goods and services, more deliveries, more installations, and more businesses opening to support growing communities that need amenities ranging from restaurants, to legal services, to healthcare, to auto repair, recreation and so much more.
And homeownership still represents the first step on the ladder of personal economic ascendancy that leads to the Middle Class, and, yes, the American Dream.
A reduction in the number of residential loans originated in America by more than 40 percent probably sounds numerically significant, and equally uninteresting all at once. However, we should all take notice, as the road to economic recovery quite simply begins and ends with residential housing. Should we allow our national residential housing market to grind to a halt, our national, and even our individual economies can't be far behind. The numbers don't lie. The time for housing solutions is now.