2 minute readSupply constraints also continue to impede the housing market. While existing home sales recently came in stronger than expected, other indicators of home sales activity, including purchase mortgage applications and pending home sales, point to near-term softening.”
This morning’s release of the National Association of Home Builders/Wells Fargo Housing Market Index for September reflects a slight uptick in homebuilder sentiment, after three months running of declines. NAHB chief economist Robert Dietz characterized the September reading as showing “stability as some building material cost challenges ease.” Steady beats unsteady, but factors remain, Dietz notes, that may make it a bumpy ride for homebuilders well into the end of the years. He writes:
NAHB expects housing affordability will be a key demand-side challenge in the coming quarters, given the rapid rate of growth for home prices and construction costs over the last year.
A change from supporting tailwinds to opposing headwinds could stiffen as the the economy pivots from Rescue mode to a New Normal market-driven dynamic in the months ahead, operating on its own power. Hits to people’s investments, retirement accounts, and other personal financial wherewithal could start to show up in spending behavioral changes, just as household costs start to reflect higher price pressures on a bucket of pocket-book expenditures.
The risk to bullish housing forecasts sounds like this, and must not be ignored:
Economic growth continues to be held back by supply chain and labor market constraints, both of which we expect to continue well into 2022,” said Doug Duncan, Fannie Mae Senior Vice President and Chief Economist. “We also expect inflation to remain elevated through much of next year, even if the crest of the recent surge is behind us. Given the strength of recent house price appreciation and rent growth, we continue to believe that the contribution from housing to underlying inflation has yet to be fully realized within the official measures of inflation. Further, affordability remains a challenge, even with mortgage rates near historic lows; if the pace of income growth doesn’t keep up with inflation and interest rates rise more than expected, we’d expect housing activity to slow from our current projections.”
