A ‘buyers’ market’ for homes is still elusive in the US

The US housing market is cooling faster than expected, as supply-chain issues continue to bite in that sector, according to Goldman Sachs.

The bank expects US home-price increases to decelerate through the rest of this year and then flatline in 2023, it wrote in a note this week. This is not because the supply strains are getting better, but because demand is falling as US mortgage costs increase. The economists looked at the state of the market in a note this week, and found some interesting trends. We will summarize the most notable here.

First, the economists write, the housing market has slowed faster in areas that got a boost during Covid-19.

© Redfin, Department of Commerce, Goldman Sachs Global Investment Research

Second, the supply issues keep getting worse, and it looks like the homeowner vacancy rate has reached an all-time low. This figure — from the Census Bureau — includes homes that are open and for sale, so it could be driven by the proliferation of homes that aren’t exactly vacant (because they’re rented out for vacations), but aren’t exactly occupied , either.

© Department of Commerce, National Association of Realtors, Goldman Sachs Global Investment Research

Third — and perhaps most interesting — the number of houses for sale has climbed significantly in the past 18 months, but basically all of the increase has been driven by homes that aren’t yet complete. We don’t want to draw a direct comparison between the US market and China’s property bust, but it is notable that unfinished homes have been the cause of the much-covered “mortgage boycott” there.

The number of completed homes for sale, shown in the bank’s chart below (dark blue), is still very low:

© Department of Commerce, Goldman Sachs Global Investment Research

In other words, supply-chain problems are going to be here for a while. As Goldman Sachs puts it:

In our view, the growing backlog of construction is a symptom of the issues that have contributed to today’s shortages, rather than a sign of the end of shortages. Homebuilders continue to face the same headwinds that were present before the pandemic and have slowed construction activity and those constraints have only been exacerbated further during the pandemic (Exhibit 6, left). While supply chain disruptions and labor shortages have begun to ease, they remain at extreme levels. And with the sequential pace of housing completions already near the highest level since 2007, it seems unlikely that the backlog of incomplete construction — which now totals roughly 650k units, or 0.8% of the owner-occupied housing stock, above pre-pandemic levels — will decline meaningfully in coming quarters.

As a result, new completed houses are selling faster than they have since at least 1975, according to the bank’s work (which includes some seasonal adjustments):

© Department of Commerce, Goldman Sachs Global Investment Research

So for aspiring homeowners waiting for a slowdown to buy, the bank writes that in a mild recession — perhaps one of the more optimistic economic scenarios as the Fed continues to hike — the likelihood of a buyers’ market is slim: “While outright declines in national home prices are possible and appear quite likely for some regions, large declines seem unlikely.”

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