Goldman: The US housing market is growing at 5%
According to Goldman’s research, house prices have continued to grow close to a 5% rate throughout 2016. This view runs against the Case-Shiller and FHFA house price indices, which appear to show that the housing market slowed during the second quarter. However, Goldman believes that this slowdown was driven by ‘seasonal adjustments’ and after adjusting for these adjustments arrived at the 5% growth figure.
Moreover, Goldman believes that the housing market is undersupplied. The lack of supply in the market and lack of inventory will continue to put upward pressure on prices supporting the market.
The lack of inventory also appears to be skewing the figures. Pending home sales are up only 1% year over year, and existing home sales are down 2% for the year. Together these two numbers paint a disappointing picture of the market. Nonetheless, Single-family inventory for sale is below 1995-2005 average levels despite the growth in population since that time. Simply put, home sales are trending lower because prices are rising as homebuilders are not meeting the market demand. It could be the case that the financial crisis is still fresh in the minds of many homebuilders, and they are unwilling to hold a large inventory of homes on their balance sheet for fear of another downturn.
Still, some markets are performing best than others. The undersupply of homes appears to be particularly acute in the lower tiers of the housing market. This is where price gains are strongest as traditional supply/demand economics force buyers to pay more for those homes in regions where inventory is in short supply. In Denver, the low tier (defined as the bottom one-third of homes, as ranked by price) has seen house prices grow by 16% over the past year vs. 6% for the high tier (top one-third) of the market. Nationwide, the lowest tier is up 8% year over year while the high tier is up 3%.
The outlook for the US housing market: Mixed but broadly positive
Mixed but broadly positive is the overall takeaway from Goldman’s report on the housing market then. Seasonally adjusted numbers show strong price growth while low levels of housing inventory should keep prices on a steady trajectory higher for some time. Overall, the bank sums up:
“While low inventory may keep house price growth strong over the near term, we think that over the longer term house price growth will moderate to a 2%-3% range, consistent with trends in incomes. We expect 3.5% growth in 2017, but low inventory, if it persists, could create an upside risk to the forecast.”