US housing market to remain a bright spot in a weak economy

[BENGALURU] US house prices will continue to surge well into next year and beyond, outpacing inflation and the overall economy, a Reuters poll of property analysts found, making it a bright spot against an otherwise gloomy economic backdrop.

In a stark reversal, the US housing market - at the epicentre of the global financial crisis more than a decade ago - was expected to extend a helping hand to an economy severely battered by the coronavirus pandemic.

Buoyed by record-low interest rates and strong pent-up demand from a segment of the workforce largely unaffected by pandemic-induced job cuts, house prices will continue to rise over the next two years, the Sept 15-29 poll of over 40 analysts showed.

US house prices were predicted to rise 4 per cent this year and by an average 3.5 per cent in 2021 and 2022. That suggests the trend since 2013 of house price rises outpacing consumer inflation would continue for the next three years at least, according to current inflation expectations.

Underscoring the view that the latest data showing a surge in house prices was not just a blip, over 60 per cent of analysts, or 24 of 39 who responded to an additional question, said that trend would continue to hold for at least another year. The remaining 15 said less than a year.

"Three factors support relatively high home prices - undersupply after a decade of underbuilding, single-family housing attractiveness in a socially distancing world, and most importantly low interest rates," said Nathaniel Karp, chief US economist at BBVA.

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"However, economic uncertainty remains elevated and the recovery after the pandemic could take time, which are the risks to the current valuations." Already tight inventory levels have been squeezed to record lows after construction activity came to a grinding halt because of the coronavirus pandemic, and with no policy relief expected, home buyers may outbid each other and crank up prices.

Existing home sales reached a seasonally adjusted annual rate of six million units in August, the highest since the tail end of the previous housing boom in 2006, and were expected to average around 5.5 million units in the coming year.

"A surge in demand has put further strain on an already tight inventory. The latest supply of existing homes dropped below three months (of inventory) for the first time since records began in 1982, and that implies sales will ease back toward the end of the year," said Matthew Pointon, property economist at Capital Economics.

When asked to rate the affordability on a scale of one to 10, with one as extremely cheap and 10 as very expensive, the poll gave a median of seven, up from six in the previous poll when predictions were for house prices to rise at a slower pace than currently expected.

"US home prices are not yet at a level that is concerning," said Matthew Gardner, chief economist at Windermere Real Estate. "That said, we need significant growth in the number of new homes built to meet current demand. If more units are not provided, we could see unsustainable upward price pressure in the resale market."

REUTERS