Fynsa
Core inflation has begun to ease (4.8% year-over-year) after reaching levels not seen since the late 1970s and early 1980s. The Fed has raised interest rates from 0% to 5.25% over the past 18 months in order to bring inflation back down to 2%, and as it has consistently announced, it will continue to use the necessary tools to achieve its goal. Above all, with the economy at full employment (with an unemployment rate of 3.6%).
The United States continues to exhibit interesting patterns of internal migration, driven by the corporate sector, resulting in labor migration to states with more favorable tax policies. Florida and Texas have benefited the most from this trend. In addition, estimates of the housing shortage remain above 3 million homes.
Two years ago, a 30-year mortgage to finance a home purchase was under 3%; today, 30-year mortgage rates are around 6.8% and are closer to the 7% average over the past 50 years. Between the impact of the pandemic and ultra-low interest rates, the average home price (nationwide) rose by approximately 54% between 2020 and the third quarter of 2022. The data shows an 11% decline so far in 2023.
Annualized residential sales fell by approximately 30% last year, and this year they are up 20% (year-over-year). An interesting fact is that sales are currently at half the peak level seen in 2006, before the subprime crisis, and despite the 2020–2021 boom, the highest reading was still 40% below the 2006 peak. Similar patterns are seen in new home construction (y/y); after a correction over the past 9 months, it has shown a rebound of nearly 22% so far in 2023. However, it remains far below the construction levels seen in the years before the subprime crisis.
My impression is that, despite higher financing costs and home prices than two or three years ago, the U.S. residential market will continue to perform well. My reasons have to do with a growing economy (2.4% in the last quarter), full employment (with an unemployment rate of 3.6%), a per capita GDP of around USD 70,000, inflation converging toward the Fed’s target levels, a housing shortage, and fairly healthy levels of activity. The risks that could arise along the way are more closely tied to access to financing for developers and real estate managers. The failure of some regional banks could create certain difficulties (a gap that has been filled by “private lenders”).
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