US: Disconnection between economy and housing sector likely to continue - Wells Fargo

According to analysts from Wells Fargo, supply shortages and affordability concerns continue to weigh on home sales

Key Quotes: 

“The recent acceleration in overall economic growth has done precious little to promote a stronger housing recovery. Home sales, new home construction and outlays for renovations and repairs were collectively a net drag on overall growth during the first half of the year, even as real GDP growth ramped up to a 4.1 percent pace during the second quarter. The disconnect between a strengthening economy and struggling housing sector has been a common theme throughout this expansion and, unfortunately, is a theme that is likely to continue.”

“The most recent housing data are perplexing. After falling in April, May and June, sales of existing homes through the first half of 2018 are running 2.2 percent below the same period last year, despite stronger job and income growth. One reason for the shortfall is the lack of homes on the market. “

The magnitude of the slide in the proportion of consumers stating now is a good time to buy a home has rarely been seen outside of a recession and is difficult to reconcile with the broadening economic recovery. One explanation for the split is that much of the economy’s strength has been concentrated in a relative handful of markets, mostly in the West and South.”

“While conditions should still improve, sales and new home construction should rise less than previously projected.”

“New home construction should strengthen later this year. Building material prices have begun to ease somewhat and typically decline during the summer and fall, which should allow builders to restart some of those stalled projects. We have trimmed our forecast for housing starts to just a 7.7 percent gain this year and have lowered our estimate for 2019 to a 6.2 percent gain.”