Fynsa
Core inflation has started to ease (4.8% YoY) after reaching levels not seen since the late 1970s, early 1980s. The Fed has raised rates from 0% to 5.25% over the last 18 months in order to bring it back to 2% levels, and as it has consistently announced, it will continue to use the necessary tools to achieve its goal. Especially with an economy at full employment (with 3.6% unemployment).
The United States continues to show interesting internal migration patterns, led by the corporate sector, and resulting in labor migration to more tax-friendly states. labor migration to more tax friendly states. Florida and Texas have been the most favored of this trend. In addition, housing shortages are still estimated at over 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 closer to the 7% average of the last 50 years. Between the pandemic effect, and super low interest rates, the average home price (nationally) rose by approximately 54% between 2020 and Q3 2022. The data shows a downward adjustment of 11% so far in 2023.
Annualized residential sales fell by approximately 30% last year, and this year show an increase of 20% (YoY). Interestingly, the level of sales is half of the peak in 2006, before the subprime crisis, and despite the 2020 - 2021 boom, the highest reading was 40% below the 2006 peak.. Similar patterns are seen in housing starts (YoY), after correcting in the last 9 months, showing a rebound so far in 2023 close to 22%. But also far from the construction levels of the pre-prime crisis years.
My impression is that, despite having higher financial costs and higher 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% last quarter), full employment (with unemployment at 3.6%), plus a GDP per capita of around $70k, inflation that is converging to Fed target levels, housing shortages and fairly healthy activity levels. The risks that could appear down the road have more to do with access to financing for real estate developers and managers. The collapse of some regional banks may bring some difficulties (space taken by private lenders).
I invite you to review our Real Estate Monitor and our other columns by clicking here.
