The US housing market is on a roll and is showing no signs of slowing down — that’s the key takeaway from Goldman Sachs’ most recent Housing Monitor research report, released Thursday.
US Housing Market: Mid-2016 Update
According to the Goldman Sachs research, US house prices have continued to grow close to a 5 per cent rate throughout 2016. This view runs against the Case-Shiller and FHFA house price indices, which appear to show that the housing market slowed during the 2Q. However, Goldman believes that this slowdown was driven by ‘seasonal adjustments’ and after adjusting for these adjustments arrived at the 5 per cent growth figure.
US HOUSE INVENTORY
The lack of inventory also appears to be skewing the figures. Pending home sales are up only 1 per cent year over year, and existing home sales are down 2 per cent for the year. Together these two numbers paint a disappointing picture of the market. Nonetheless, Single-family inventory for sale is below 1995- 2005 average levels despite the growth in population since that time. Simply put, home sales are trending lower because prices are rising as homebuilders are not meeting the market demand. It could be the case that the financial crisis is still fresh in the minds of many homebuilders, and they are unwilling to hold a large inventory of homes on their balance sheet for fear of another downturn.
The undersupply of homes appears to be particularly acute in the lower tiers of the housing market. This is where price gains are strongest as traditional supply/demand economics force buyers to pay more for those homes in regions where inventory is in short supply. In Denver, the low tier (defined as the bot- tom one-third of homes, as ranked by price) has seen house prices grow by 16 per cent over the past year vs. 6 per cent for the high tier (top one-third) of the market. Nationwide, the lowest tier is up 8 per cent year over year while the high tier is up 3 per cent.
While low inventory may keep house price growth strong over the near term, we think that over the longer term house price growth will moderate to a 2-3 per cent range, consistent with trends in incomes. We expect 3.5 per cent growth in 2017, but low inventory, if it persists, could create an upside risk to the forecast,” sums up Goldman Sachs in it’s report.
US HOME VALUES
US home values are at or past peak levels in roughly a quarter of US markets, signaling a recovery since the housing bubble bust, but a growing divide be- tween renter and homeowner sentiments persists, highlighting two very different trends in the housing market right now.
“The overall health of the housing market looks great at first glance, but dig a bit deeper you’ll find inequality between renters and homeowners,” says Zillow Chief Economist Svenja Gudell. “Even though the majority of homeowners are confident and believe now is a good time to sell, they’re holding off be- cause they expect home values to continue to appreciate and want to ride the wave. They also don’t want to turn around and become buyers in a competitive market. On the flip side, renters aren’t nearly as confident as homeowners — they’re discouraged by the shrinking number of homes for sale and rapidly rising prices. As housing gets more and more expensive, these trends are not sustainable in the long-run, especially once mortgage rates start to rise.”
US DEMOGRAPHICS
Over the past four decades, the US has seen a dramatic increase in the proportion of homeowners to the US population, peaking just short of 70 per cent in 1Q 2005, according to the US Census Bureau. Since then, homeownership has declined to the low 60s, said National Mortgage News Tuesday.
US Housing Market Update
The rate of homeownership in the US is likely to continue to decline further into the mid-to-low 50s as changes in demographic trends, increased regulation and stagnant real incomes all work to make the dream of homeownership more difficult to achieve, continued National Mortage News.
The housing boom of the 2000s was a bubble supported not just by easy credit, but also by a wave of Americans entering peak childbearing and household-spending years. As these relatively affluent households age and migrate away from single-family homeownership, there is an insufficient supply of new homeowners to replace them.
While the recovery of U.S home prices from their nadir in 2012 was largely driven by a lack of supply, the longer term challenge facing the industry will be a dearth of demand — namely, homebuyers and mortgage credit.
US Housing Market Assessment: Mid-2016
Last month, the Financial Forecast compared the status of the current US housing market to that of mid-2005, when the rush to buy US housing reached the feverish climax shown on this long term chart of U.S. homebuilding stocks. The price pattern shows that housing appears to be on the cusp of return to the crisis environment that figured so prominently in the Great Recession.
The Financial Forecast observed last month, “Optimism toward housing prices appears as strong now as it was in July 2005.’
June was the 50th straight month of annual national home price appreciation. According to CNBC (August 29), home prices are only 1 per cent shy of their 2006 peak.
Sales for high-end properties stalled earlier this year. The decline picked up speed in July. In Miami-Dade County, the year-over-year decline in sales jumped to 20.8 per cent. Over the same span, Southern California sales fell 10.7 per cent. For the US, the National Association of Realtors reports that in July, existing home sales dropped 3.2 per cent from a month earlier.