The U.S. housing and homebuilding markets dropped in 2020 on fears that a COVID-induced catastrophe would disrupted the U.S. economy. The recovery, however, came quickly in 2021, aided by decades-low mortgage rates, limited housing supply, and a strong job market.
The recovery was nonetheless shortlived as the market slowed in 2022 on higher mortgage rates and weaker consumer confidence because of inflation. However, it began to recover in 2023—including a surge at the end the year.
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That jump was due to pent-up demand. Many people who own a home right now refuse to sell because they have a low-rate mortgage and don’t want to reset it at a higher rate. As a result, new home sales have climbed even as existing home sales have slumped to multi-decade lows.
Demand for new homes keeps rising
During the financial crisis of 2008 to 2009, sales of new single-family homes in the U.S. declined sharply. But sales have been on a steady upward trend since then despite a temporary lull during the early COVID-19 period.
Housing starts are now back to the long-term average of around 1.4 million units per year . In addition, multi-family housing starts (such as apartment buildings) boomed over the past three years to reach their highest level since 1985.
Some demographic trends are supporting the increased demand for single-family homes. Household formations among younger Americans (millennials have become the largest generation) will continue to fuel the need for more housing over the next 10 years. On the supply side, U.S. housing stock is undersupplied by an estimated 3 to 5 million units.
Strained affordability is a constraint
Given the sharp increase in house prices—up by 54% over the past five years—and the considerably higher mortgage rates, home affordability has weakened in the short term.
A housing affordability index produced by JP Morgan indicates that affordability is at its weakest level in at least 30 years. However, JP Morgan estimates that affordability can return to the long-term average within two years if mortgage rates drop by 1% and personal incomes rise by 7%.
Employment is one of the key drivers of housing demand. The U.S. has now recouped all of the 22 million jobs lost during the height of the COVID-19 lockdowns. As well, the national unemployment rate at 3.7% is very close to the February 2020 level of 3.5%. That was a 50-year low. In addition, median wages have been rising, with a group of typical home buyers (25 years and older with a basic degree) receiving wages now 17% higher than immediately before the start of the pandemic.
Homebuilders confirm sound market conditions
D.R. Horton Inc. (New York symbol DHI) is the largest homebuilder in the U.S. with operations in 33 states. In 2023, the company reported 6% higher sales over 2022. In 2024, it is expecting continued revenue growth. Meantime, Horton’s balance sheet is healthy while its profitability is at levels well above its long-term average.
Lennar Corp. (New York symbol LEN), another large U.S. homebuilder, reported record profits, revenues, and home deliveries in 2023. The company is forecasting a 10% increase in home deliveries in 2024. That will push up sales and earnings in 2024, and the company’s balance sheet is sound.
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The Successful Investor Inc. and its affiliate Successful Investor Wealth Management (referred to hereafter as TSI Network) know that you care how information about you is used and shared, and we appreciate your trust that we will do so carefully and sensibly. This notice describes our privacy policy. By visiting websites owned by or associated with TSI Network, you are accepting the practices described in this Privacy Policy.
This privacy policy is applicable to all TSI Network Visitors, Clients, Employees, Suppliers, Web sites, Management, and all other interested parties. Any links to or from our site are not covered by this policy. We encourage you to read the privacy policies of every site that you visit.
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What personal information do we collect?
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