US Housing: Hopes For A Turnaround?

Amidst the government shutdown, third-party housing numbers are one of the few data sets we are still receiving. Existing home sales offer further warning signals, but elsewhere, we may be seeing signs of stabilisation and even a potential recovery.

A stall becomes a slowdown…

A healthy housing market normally equates to a healthy economy. Rising housing transactions are typically associated with rising residential construction activity and retail sales – particularly in furniture and furnishing components, as well as the building materials and garden equipment sector. However, over the past 12 months, we have seen a clear slowing in both existing and new home sales with the stock of unsold supply on the market picking up, too. For new homes, it currently stands at an eight-year high of 7.4 months of sales. Tuesday's steep fall in existing home sales for December to 4.99 million annualised - the lowest since the November 2015 blip - means that it now takes an average 46 days to sell a property.

House prices have tentatively started to respond to this with the national annual rate of inflation slowing to 5% in October versus a peak of 6.8% seen in March last year. The slowdown appears particularly pronounced in cities that have experienced construction booms in recent years, such as the major West Coast cities. This has led to fears that a weakening housing market could become another headwind for the US economy, prompting slower economic activity and a more cautious approach to interest rate hikes from the Federal Reserve.

US home sales and US S&P Case-Schiller house price inflation (3M annualised)

Bloomberg, ING

In one sense, the fact that the relationship between residential construction and GDP growth has broken down offers some comfort that we shouldn’t necessarily brace for a broader economic downturn - the former slowing while GDP growth has accelerated. But this is not something that we expect to last for a prolonged period given housing’s important feedback into broader activity and confidence.

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