Highlights from a housing market outlook
Don't fight the Fed.
That was one of the Wall Street slogans that was on display at a presentation on the U.S. housing market delivered by Matt Saunders and Chris Beard, both of John Burns Research and Consulting.
The Fed – the Federal Reserve, that is—has a built-in objective to maintain a stable inflation rate of 2 percent. And with inflation running hot at just under 4 percent at last count (and down from about 8.5 percent in mid 2022), the fed isn’t ready yet to add fuel to inflation with lower interest rates. And 30-year fixed rate mortgages have increased (to a recent 7.3 percent) as the Fed tightened monetary conditions. They remain high for longer than recently forecast.
And with that observation, Saunders, senior vice president of building products research for JBREC, and Beard, director of building products research, were off and running on a 90-minute presentation, that seemed to cover every economic nook and cranny of the housing market.
The presentation followed by just a few hours the release of the U.S. Bureau of Labor Statistics employment situation report, which showed 336,000 new jobs in September, compared to an average monthly gain of 267,000. Those numbers suggest a “soft landing” for the economy is possible, Saunders said.
“Labor market resilience suggests we may avoid the most anticipated recession in U.S. history,” he said.
Delivered during the 2023 ProDealer Industry Summit here, the presentation delivered data in. rapid fire style. Here are some of the highlights:
• The pandemic-induced supply chain snarls were “a major driver of the recent inflation, as those ease, the Fed’s task becomes easier,” said Saunders, referring to the task of targeting 2 percent inflation.
• Housing affordability is a major challenge for the market. It’s “the biggest challenge,” in fact, said Saunders. The increase in mortgage rates froze 24 million households out of qualifying for a mortgage. That number means about half of the prospective buying pool is frozen out of the market.
• As every major housing market is currently “overpriced,” builders are responding. They’re installing lower cost materials. They’re building smaller homes, and adjusting product mix to lower costs. These actions have driven declines in 2023 residential construction spending, which is down roughly 9 percent.
• Meanwhile, “Consumers are becoming more cautious and deferring or canceling big-ticket remodels,” Saunders said. “This will result in some pent-up demand for future years.”
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