Housing is a Tale of two Markets
DID YOU KNOW? Right now housing is a “tale of two markets,” where there is more demand for lower-priced homes than high-end homes. Homebuilder sentiment ticked up in January after 2 months of sharp declines, but increasing costs have stunted construction of lower-priced homes that are less likely to turn a larger profit. (CNBC).
- Affordability is no longer getting worse. In December, it actually improved marginally thanks to a softening in new home prices, slowing gains in existing home prices, rising wages and, most importantly, a fall in mortgage rates.
- Housing starts are still catching up with estimates of structural household formation growth and vacancy rates remain low. Usually, this far into the cycle, there is evidence that the housing sector is over-supplied. Not this time.
Unlike ride-sharing, where a car that previously served one household can now serve 10, few families want to share their homes. The vast majority of people want their own home.
The demographic sweet spot for the housing market is a population in which those aged 50 and under is growing, while the numbers aged 65+ are either stable or falling. Slowing under-50’s and growing over-65’s is exactly what the US had in the 2000s, which meant the decade was a very poor demographic window for a housing boom and this contributed to the 2007-9 housing bust. The growth of the under-50’s is accelerating again over the next 10 years and the growth of the over-50’s is stable.
Interest rates dropped roughly 11% from their high of 2 months ago, now around 4.55%.
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