US: Constructive housing market outlook for now - ING

According to Jonas Goltermann, Developed Market Economist at ING, another decent set of data on the US housing market suggests buyers are so far coping with higher mortgage rates and the effect of tax reform.

Key Quotes

“Existing home sales rose by 1.1% month-on-month and new home sales jumped by 4%, both beating expectations. Pending home sales, an indicator of sales for the next couple of months, rose by a more modest 0.4% MoM, a touch below expectations, suggesting some dampening in the outlook for 2Q.”

“Despite the increase in March relative to February, sales of existing homes were below the level seen in March of last year.”

“The good news for prospective buyers is that house construction is picking up. New starts rose to 1.319m in March and new permits to 1.354m, both around 10% higher than a year ago. Estimates for the previous months were revised up as well, pointing to stronger momentum in the construction sector. This means residential investment looks likely to make a significant contribution to US growth this year, and should eventually make it a bit easier to find a home to buy in the US.”

“Overall, we remain pretty optimistic about the US housing market in the near term. A strong economy and rising house prices go hand in hand, with increasing construction activity supporting growth momentum. But there is an inherent tension between rising house prices and higher interest rates. Eventually, affordability will be squeezed to the point that price growth moderates and construction slows. We aren’t there yet, and may not be for some time. But the pinch point is getting closer.”