Resilient U.S. Housing Market Defies Lofty Rates
Continuing to defy notions of rising rates, much of the United States housing market has remained resilient to such, even with mortgage rates rising to 20-year highs.
Homebuyers have been competing for a shrinking supply of housing, particularly on the existing homes end. Comprising of more than 70% of U.S. residential listings, existing homes continue to run at three months’ supply.
And, being that homes in the U.S. are financed at fixed rates, homeowners with secured low rates aren’t looking to move anytime soon given today’s high-rate environment. These homeowners are expected to stay put, leaving a strain on the rest of the market.
According to Alliance Bernstein, Homebuilders, recognizing a growing population’s need for more housing, are gradually ramping up construction—but new inventory is being quickly absorbed. The unsold pipeline of new homes is within recent historical norms, but there’s still a shortage of single-family homes, which make up only a quarter of current inventory.
This is due in part to systemic underbuilding following the global financial crisis. After seeing home values plummet, a shrinking number of builders became wary of expanding the single-family pipeline too much. The result: most new construction consists of multi-family homes, while a greater share of single-family homes is being built for rental—trends that position the US market to continue absorbing single-family supply.
The high cost of homeownership is creating a challenging backdrop for homebuyers. Elevated prices and high rates mean prospective homebuyers face monthly payments that are more than double those of just a few years ago—prompting many to put house hunting on hold. This is reflected in the declining traffic of prospective buyers, which is well below its long-term average.
Despite these headwinds, we see pockets of pent-up demand.
Housing costs have soared so much that in many parts of the country, renting has become more affordable than owning. Nonetheless, the overall percentage of US renters is declining. In our view, this is because most Americans prefer owning—and they fear missing out on home price appreciation. If these trends continue, a falling percentage of renters should ultimately support home prices.
