Housing finance matters. As of the fourth quarter of 2016, there was $22.7 trillion in housing in the United States, financed by $10.3 trillion in mortgage debt and $12.4 trillion in owner equity, making housing the single largest asset for most American families. Accordingly, the housing sector is a critical component of the U.S. economy and an important engine for domestic economic growth: In 2016, the housing sector – comprised of housing services and residential investment – contributed 15.6% to U.S. gross domestic product (GDP), and the homeownership rate in the U.S. was 63.6% in the first quarter of 2017.

Yet, while housing remains an important part of the economy, its significance has shrunk relative to other periods. This is the case when compared to the housing heyday of 2005–2006, when seemingly limitless credit expansion led to significant housing-sector growth, with housing contributing 18.6% to GDP and the homeownership rate rising to nearly 70%. But it is also the case versus the earlier stable and sober period of 1980–2000, when housing contributed around 18.3% to GDP and the homeownership rate ranged between 64.4% (1980) and 66.2% (2000). Today, the housing sector is smaller even though demand continues to be strong: According to the Survey of Consumer Expectations Housing Survey published in June 2017 by the Federal Reserve Bank of New York, 72.2% of those surveyed preferred (22.9%) or strongly preferred (49.3%) owning versus renting.

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The Author

Libby Cantrill

Public Policy

Mike Cudzil

Portfolio Manager, Liability-Driven Investment

Daniel H. Hyman

Head of Agency MBS Portfolio Management



A word about risk:  All investments contain risk and may lose value. Mortgage- and asset-backed securities may be sensitive to changes in interest rates, subject to early repayment risk, and their value may fluctuate in response to the market’s perception of issuer creditworthiness; while generally supported by some form of government or private guarantee, there is no assurance that private guarantors will meet their obligations. Certain U.S. government securities are backed by the full faith of the government. Obligations of U.S. government agencies and authorities are supported by varying degrees but are generally not backed by the full faith of the U.S. government. Portfolios that invest in such securities are not guaranteed and will fluctuate in value. Investing in the bond market is subject to risks, including market, interest rate, issuer, credit, inflation risk, and liquidity risk. The value of most bonds and bond strategies are impacted by changes in interest rates. Bonds and bond strategies with longer durations tend to be more sensitive and volatile than those with shorter durations; bond prices generally fall as interest rates rise, and the current low interest rate environment increases this risk. Current reductions in bond counterparty capacity may contribute to decreased market liquidity and increased price volatility. Bond investments may be worth more or less than the original cost when redeemed. The credit quality of a particular security or group of securities does not ensure the stability or safety of the overall portfolio.

Statements concerning financial market trends are based on current market conditions, which will fluctuate. There is no guarantee that these investment strategies will work under all market conditions or are suitable for all investors and each investor should evaluate their ability to invest for the long term, especially during periods of downturn in the market. Outlook and strategies are subject to change without notice.

This material contains the opinions of authors but not necessarily those of PIMCO and such opinions are subject to change without notice. This material has been distributed for informational purposes only and should not be considered as investment advice or a recommendation of any particular security, strategy or investment product. Information contained herein has been obtained from sources believed to be reliable, but not guaranteed.