US Housing: Structural and cyclical headwinds bite - ANZ
|In view of Daniel Wilson, Market Economist at ANZ, the acceleration in US housing starts is slowing down and whilst they expect housing construction to continue contributing to growth, risks to the outlook are emerging with structural demographic issues meeting supply-driven cost increases.
Key Quotes
“Despite a solid economic backdrop, structural headwinds appear difficult to overcome. The number of new households created in 2017 was at the third lowest level since 1961, only 405,000. An increase in the debt burden on the younger generation is likely to be a meaningful headwind.”
“With interest rates on the rise, lending officers are already reporting lower demand for mortgage loans in 2018. Tighter immigration may also sap another source of new demand.”
“Supply-side risks are also emerging. Labour markets continue to tighten and competition for construction employees is heating up. Growth of public spending on construction is outpacing private construction expenditure for the first time since the global financial crisis (GFC), and mortgage rates have climbed rapidly. In addition, important raw commodity input prices are climbing quickly; lumber prices are up 85% y/y.”
“Overall, these supply-side and structural dynamics suggest the broad-based momentum of the US economy may not be enough to lift housing demand further over the coming quarters. We may have reached a plateau in housing starts.”
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