Housing Construction

Chart of the Day: US Housing and Construction Set to Fall?

Home prices rose 18.8% in 2021. It is the biggest increase in home prices in 34 years. The biggest increase in home prices took place in Phoenix, where they rose 32.5 percent. Other hotspots include Tampa, where the jump was 29.4 percent, and Miami, which saw a 27.3 percent rise. Is this a housing bubble?

The question many are asking is whether this trend will continue, stall or even reverse.

Homebuilders have amassed 406,000 single-family houses for sale (seasonally adjusted) at all stages of construction, according to data from the Census Bureau. This is the biggest unsold inventory since August 2008, up by 69% from a year ago, representing 6.1 months of supply. See this trend data in the chart below and learn more here.

Single Family Houses For Sale 2022-JanThe number of houses for sale in January that was still under construction were essentially unchanged from December, at 263,000, and both were the highest since August 2007. The number of houses for sale where construction hasn’t started yet jumped to 106,000 in January, the highest in construction not started data going back to 1963, as homebuilders. This means the supply of homes coming to market is at near-record highs.

US New House Sales 2022-Jan

Construction costs of single-family houses – excluding the cost of land and other non-construction costs – spiked by another 1.1% for the month and increased by 16.8% year-over-year, according to separate data from the Census Bureau. These year-over-year cost spikes in January and December were the worst in the data going back to 1964.

Construction Costs 2022-JanThe median price of single-family houses sold in January undid most of the mix-based drop in December, and at $423,000, was up 13% year-over-year. And as big as that increase seems, it was down from the increases in the 20% to 23% range that prevailed last year through November. Housing supply is at near-record highs, and prices are also at near-record highs – see median housing prices historically in the chart below.

New House Sales Price 2022-Jan

Many home buyers merely look at their monthly payments when determining what they buy. The chief component in the monthly payment is the mortgage rate. The current 30-year mortgage fixed rate as of February 2022 is 3.89%. The higher mortgage rates will cause both cooling in purchases and prices. See the historical trend in US mortgage rates and see source data here.

30-year Fixed Mortgage Rates 2022-JanAs said before, with the housing supply at near-record highs and prices also at near-record highs, can the current trend continue, stall or even reverse in 2022? Adding in rising construction costs and rising mortgage rates, the future of the housing market becomes problematic.

As a backdrop to the housing market, one must also look at the health of the economy – i.e., the ability of home buyers to purchase. The Atlanta Fed GDPNow model estimate for real GDP growth (seasonally adjusted annual rate) in the first quarter of 2022 is 1.3 percent on February 17, down from 1.5 percent on February 16. The US Census Bureau nowcast of first-quarter real residential investment growth decreased from 4.7 percent to 0.3 percent. See trend data in the chart below.

GDPnow 2022-JanSo far, all this data seems fairly negative for home prices going forward – i.e., a cooling housing market. However, on the other side of this argument is the horrendous currency debasement ongoing and population growth via immigration, though most new immigrants being illegal will not have sufficient income to become instant home buyers.

This leads one to believe that the housing market will cool and/or stall at best over the next 6 to 12 months. It may all boil down to how aggressive the Fed will be to deflate the current housing bubble and inflation overall. Please give us your assessment in the comment section below.

See more Chart of the Day posts.

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 RWR original article syndication source.

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5 Comments

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  1. I saw a story this weekend about a home in Raleigh, NC that went on sale for less than $300K and the first day of its showing, the lawn was filled with buyers waiting to see the inside. When buyers are that desperate, it’s probably not a good time to buy. In some places, the home is on contract before the first day of the open house.

  2. As a developer and manufacturer of building products I can assure you that the full impact of raw material shortages and their associated cost increases has not yet reached the market. The present Ukraine situation will only make matters worse. And there are oodles of dollars floating around looking for inflation resistant use and the only way to absorb them into the economy is via inflation. I don’t see a “bursting” of the bubble. We better get used to the dollar simply not buying as much anymore.

  3. The 30-year fixed Mtg. rate is steadily trending DOWN with slight upticks. I don’t see the steep climb that we got in 2006-2008. Nowhere close to being a bubble.

  4. I work in the building materials industry. It is next to impossible to fill orders on a daily basis. Out of stocks is the norm in all areas. Super long lead times on Millwork is due to materials and or labor not being available to build the products. I do not agree that there won’t be a “bursting”, I can’t imagine how anyone can’t see this house of cards falling soon.

  5. My husband and I looked at a house I found on the internet on Friday. Set up an appt. to look at the house on Monday. We loved it. Put in an offer in on Monday and was called Tue. the house was ours. There were 22 offers. There is a demand for homes but not enough to sale at this time. I was so surprised.
    Building homes are not doing good right now. They can’t get products to do a new build. SMH! I never thought I would ever see a shortage of homes to sale in our town.

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Written by Tom Williams

Born down on the farm in America's Midwest, my early life was spent climbing the ladder via a long career in information technology. Starting as a technician, and after earning a degree going to night school, I eventually found a place working at ATT Bell Laboratories as a software engineer.

Later moving into management and then a long stint in a major management consulting firm working with major banking, telecommunications, and retail companies. Working in various states in America, I also spent considerable time living and working in several European countries - currently expat in France. As a side career, I was heavily involved in real estate development and an avid futures trader. This experience can give one a unique view of the world.

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