Jun 20, 2023 - Economy

America's housing tailwind

Illustration of a hundred dollar being built by construction vehicles. 

Illustration: Aïda Amer/Axios

One lasting result of the 2008 financial crisis was a chronic undersupply of housing in America. That dynamic helps explain why the U.S. economy has proven so remarkably resilient over the last year.

Why it matters: Demand for more homes is rebounding despite 7%+ mortgage rates, and there is a sustained appetite for the construction workers who build them. Consumer spending is being supported by equity-rich homeowners, who haven't seen prices fall as dramatically as one might have expected given the swing in rates.

  • These are among the reasons the economy has not fallen into the recession many have been predicting since the Fed began its rate-hike campaign 15 months ago.

Catch up quick: The housing sector — a notable drag on last year's economic growth — was first to feel the effects of the Fed's tightening.

  • Mortgage rates soared, crushing demand from homeowners; that drop-off in demand meant homebuilders grew more hesitant to break ground on new construction.

Yes, but: Those conditions have begun to reverse. Speaking to reporters last week, Fed chair Jerome Powell acknowledged that the housing sector had bottomed and is "maybe even moving up a little bit."

What's going on: Demand is rebounding, with even less housing supply on the market than usual, helping support prices.

  • For instance, existing home sales in April fell 23% from the same period a year ago, a result of homeowners locked into low rates reluctant to give that up. New home sales, meanwhile, were up 12%.

The intrigue: Homebuilders, with supply chain snarls having cleared up, are moving to spring up new properties — engaging in tactics like mortgage buy-downs to attract buyers.

  • "Supply is short, demand is returning to affordable offerings, and builders will need to produce more homes to fill the void," Stuart Miller, executive chairman of homebuilder Lennar, said during the company's earnings call last week.

Between the lines: These dynamics have implications for the broader economy, including consumer spending and the job market.

  • "We have not seen any significant declines in construction employment," says Mark Zandi, chief economist at Moody's Analytics, tells Axios.
  • "If a worker loses a job on a single-family home project, they could just walk across the proverbial street and get a job working on a multifamily project."
  • On consumer spending, Zandi adds, "People are still rich with homeowners equity, so they're in a much better financial position, despite the recent price declines. That is also very important in supporting consumer spending."

The bottom line: Last year, the housing sector looked to be leading the economy into a recession. Now it's helping America stave one off.

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