Builders begin slow move back to starter homes

Tight supply of affordable homes, and a relatively large increase in their price, are encouraging builders back to the starter home sector. But a slowing economy and tighter credit conditions rule out a substantial shift to cheaper homes. Instead, we expect the gradual rise in new homes sold for under $300,000 to continue, from just under 50% today to around 55% by the end of 2020.
Matthew Pointon Senior Property Economist
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US Housing Market Data Response

Mortgage Applications (Nov.)

A rise in mortgage rates to an eight-month high of 3.31% by the end of November failed to dampen home purchase demand, which surged to a nine-month high. The drop in 10-year Treasury yields from the arrival of the Omicron variant implies mortgage rates will fall back over the next couple of weeks, which may provide some further support to demand. But with affordability stretched we doubt the current level of home purchase applications can be sustained beyond the next few weeks.

1 December 2021

US Housing Market Data Response

Case-Shiller/FHFA House Prices (Sep.)

Annual house price growth fell for the first time in 16-months in September, and stretched affordability means it should continue to slow. It is too soon to say what impact the arrival of the Omicron variant will have on the housing market. But one immediate effect has been a fall in interest rates, which if sustained may give prices some support over the remainder of the year.

30 November 2021

US Housing Market Update

Why are pending and existing home sales diverging?

An increase in the quality of mortgage borrowers, and record low inventory, are boosting the mortgage closing rate and leading to an increase in the share of pending home sales converted into existing home sales. Those factors are not set to go into reverse anytime soon, so we don’t think existing sales will snap back to match the pending sales index over the next few months.

29 November 2021

More from Matthew Pointon

US Housing Market Update

What’s driving the surge in rent expectations?

Consumer expectations of rental growth have surged to record highs over the past couple of months. But that appears to reflect optimism around the housing market in general, rather than the rental sector in particular. We therefore doubt actual rental growth will follow expectations to record highs. That said, a rise in demand as cities and offices reopen means rental growth will recover, albeit to a fairly modest 2% y/y by the end of the year.

10 June 2021

US Housing Market Chart Book

Home sales cool and prices will soon follow

Both new and existing home sales dropped back in April and the May pending home sales index points to further declines in existing sales over the next couple of months. House price growth of over 13% y/y and a rise in mortgage rates since the start of the year have stretched affordability and alongside record low inventory that is weighing on housing market activity. But unlike the mid-2000s, we doubt an unsustainable boom in house prices is on the horizon. Credit conditions tightened last year, and we expect only a gradual easing over the coming months. Price growth will therefore soon follow the downturn in home sales. Rental demand is recovering swiftly as the economy has reopened and vacancy rates are now falling. We expect that trend will continue, pushing rental growth up to 2.0% y/y by the end of the year.

8 June 2021

US Housing Market Update

House prices will avoid a dangerous bubble

House price expectations have taken off since the start of the year, and that raises the risk of a self-reinforcing bubble forming. However, there are no signs that lenders are rapidly loosening credit conditions on the back of higher house prices, and that argues against a repeat of a mid-2000s credit cycle. Rather, rising mortgage interest rates, a stabilisation in down payments and stretched affordability mean that house price gains will slow over the second half of the year.

1 June 2021
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