Economists at Goldman Sachs are optimistic on housing and said that longer term supply and demand relationship on real estate supply and demand was still positive by looking at the macro economic data.
The recent weakness in home sales and starts, coupled with relatively downbeat commentary from the major home builders in their third-quarter earnings calls, suggests that the around 1.2 percent increase in 30-year mortgage rates from May to September is taking its toll on housing demand. According to economists, the slowdown will ultimately be limited. The lags between interest rates and housing starts are typically only 2-3 quarters, which suggests that we should be close to the peak impact, barring another surge in mortgage rates. And the longer-term supply-demand story is still positive.
The U.S. population is growing by about 2.5 million per year, and the average household size stands at just over 2.5. This implies household formation of about 1 million per year if household size stays constant and perhaps 1.3 million per year if average household size trends down slightly as it has over longer-term history. Add to this a demolition rate of perhaps 300,000 per year, and the trend demand for homes is in the 1.3-1.6 million range, far above the current pace of housing starts of 900,000.
These are the high level analysis from macro economic perspective. Every neighborhood is different. When it comes down to the place you want to buy, it’s best to look at the local micro data with your trusted real estate agent while at the same time keep these macro economic data in mind.
