Housing: A long boom prices out new buyers
How long will the housing market keep humming along? asked Paul La Monica in CNN.com. Builder sentiment is “at its highest level since February 2018,” according to the National Association of Home Builders, while data on building permits shows that “starts for single-family homes” are on the rise. “Low mortgage rates are helping to convince some renters, particularly younger Millennials looking to start families, to take the plunge and buy homes.” Investors have noticed. The exchange-traded fund S&P Homebuilders (XHB), “a fund that includes shares of top builders and other companies with a lot of revenue tied to the housing market, is up a stunning 38 percent this year,” while shares of Home Depot and Sherwin-Williams reached record highs last week. The one potentially bad omen, said Ryan Dezember in The Wall Street Journal: remodeling activity, which had been growing at a 5 to 7 percent annual clip, may be slowing. Renovation and maintenance spending is “a good barometer of the housing market,” because sellers usually like to “spruce up their houses before listing them.”
Years of price increases have created a shortage of affordable housing, said Prashant Gopal in Bloomberg Businessweek. “Home prices in the U.S. are up 25 percent in five years,” but “new construction has been slow” as builders haven’t stepped in with new housing. Some states, such as Oregon, have imposed a statewide cap on rent hikes, while Minneapolis “became the first major U.S. city to eliminate single-family zoning.” In parts of California, Washington, and even southern Florida, the average home price is now more than six times the median household income. “Oregon is emerging as a testing ground” for solving the affordable-housing shortage, said Will Parker in The Wall Street Journal. In June, the state legislature passed a zoning law “requiring cities of 25,000 people or more to allow two-, three-, and four-unit residential buildings in neighborhoods of single-family homes.” Oregon demonstrates the basic problem for the housing market around the country: Home prices there “have increased at more than triple the pace of wage growth over the past decade.” That can’t go on forever.
For the moment, though, things look good “for the vast majority of housing market indicators,” said Conor Sen in Bloomberg.com. “August was the best month for building permits—a reliable leading indicator of housing starts—in more than a decade.” Housing prices rising at a time when industrial activity is plunging is unusual; “the closest comparable period” was 2001, when “the technology bubble was going bust.” By contrast, tech is holding strong, and there’s a good chance that the strong housing market could compensate for any slowdown from the trade war. ■