Housing Affordability is Becoming a Problem

Housing affordability is becoming a problem in the U.S. and is transforming the market in ways that could be difficult for homebuyers and homebuilders alike. Tuesday's economic calendar saw housing starts plunge by 11.3% month over month in August to 1.283M, marking the lowest level since June 2020. On a Y/Y basis, housing starts fell a further 14.8%, and well below the 1.435M units expected by economists. 

Quote: "High mortgage rates are clearly taking a toll on builder confidence and consumer demand, as a growing number of buyers are electing to defer a home purchase until long-term rates move lower," Robert Dietz, chief economist of the National Association of Home Builders, said earlier this week. The statement came after homebuilder sentiment dropped for the second consecutive month and fell below the key break-even measure of 50. 

The latest data may not only spell trouble for current housing dynamics, but future supply as well. Many are sitting on mortgages taken out during the beginning of the COVID pandemic, when rates were at 3% or under, and are not in a rush to exit their current properties. At the same time, builders are concerned about constructing new houses that buyers may not be able to afford, which has pushed many of them to the sidelines. Student loan repayments are also about to restart, which can be another big setback for millennials who are looking to break into the market.

What to watch: "As long as rates remain high, homeowners will be reluctant to sell. And that lack of homes for sale will keep prices high because it means buyers are duking it outfor a limited supply of houses," wrote Chen Zhao, lead of Redfin's (RDFN) economics research. In fact, the median U.S. home sale price advanced 3% Y/Y to $420,846 in August, marking the largest annual increase since October, when mortgage rates surpassed 7% for the first time in two decades. Home purchases are also getting scrapped at the highest rate in nearly a year, with nearly 60K home-purchase agreements across the country canceled in August.