<link rel="alternate" hreflang="en-us" href="https://www.prudentialprivatecapital.com/perspectives/economic-perspectives-the-us-housing-recovery-gathers-momentum"> <link rel="canonical" href="https://www.prudentialprivatecapital.com/perspectives/economic-perspectives-the-us-housing-recovery-gathers-momentum" />
Feb 3, 2020
 in 
Economics

Economic Perspectives - The US Housing Recovery Gathers Momentum

by Robert F. DeLucia,
CFA Consulting

Summary and Major Conclusions:

  • The housing market has been on a roller coaster over the past several years, mainly driven by large swings in interest rates. Housing activity bottomed approximately one year ago in response to a steep decline in mortgage rates at that time.
  • The housing market is currently in a gradual but sustained recovery and has gathered momentum over the past six months. Both sales and new construction are in an uptrend, as home buyers take advantage of attractive financing terms in an environment of full employment.
  • Despite month-to-month volatility, traditional measures of housing market activity continue to herald a sustained recovery in sales and new construction. Single-family housing starts have jumped by 30% since their cyclical low one year ago.
  • Sales of previously owned homes have risen by more than 10% from their recent cyclical low. Sales of new homes have risen to a 12-year high and are nearly 30% above their recent low.
  • The cyclical rebound in housing sales and new construction would be even stronger in the absence of persistent supply-side constraints. Inventories of existing homes for sale have declined to only 1.4 million units — the equivalent of only three months’ supply — the lowest level in nearly four decades.
  • There are numerous fundamental reasons to be optimistic regarding the outlook for the housing market. The most important drivers of growth pertain to interest rates, labor market trends, household formation, consumer confidence, affordability, and inventories.
  • The primary driver of housing demand in the medium term is the level of mortgage rates. From a peak of nearly 5%, the current rate on a 30-year fixed-rate mortgage has declined to 3.55%.
  • Demographic factors are also favorable for the housing market. Young adults within the ages of 25 and 35 are the fastest-growing segment of the population and are widely considered the prime homebuying age group.
  • New households are forming at a rapid rate. Household formations slowed to a crawl during the Great Recession and during the early years of the economic recovery, but are currently in a rapid catch-up phase.

Read More...

To view an archive of past Economic Perspectives, click here.

Prudential is authorized to transact business in all U.S.states and the District of Columbia. Product availability varies by state and country. Prudential, the Prudential logo, and the Rock symbol are service marks of Prudential Financial, Inc. and its related entities, registered in many jurisdictions worldwide. © Copyright 2019 Prudential Financial, Inc., Newark,NJ USA. All rights reserved. Prudential Financial is a service mark of The Prudential Insurance Company of America, Newark, NJ, and its affiliates. Prudential Financial, Inc. of the United States is not affiliated in any manner with Prudential plc, incorporated in the United Kingdom or with Prudential Assurance Company, a subsidiary of M&G plc, incorporated in the United Kingdom. Your personal information may be stored and processed in any country where PGIM has facilities or in which we engage service providers and if you provide Personal Information to us you consent to the transfer of that information to countries outside your country of residence, including the United States, which may have different data protection rules than those of your country.