There are small signs of a slowdown in the rise of housing prices. Core Logic, a real estate data provider, sees some moderation in this New Year.
“As we close 2021, housing market indicators, including S&P CoreLogic Case-Shiller Index, suggest that the housing market will have another strong year in 2022. While the expected slowing of home price growth suggests overall annual appreciation in 2022 will fall shorter than that of 2021, the annual average of 7% is still higher than the average 5% seen between 2010 and 2020.”
Housing’s annual price appreciation is slowing in part because new construction is making up some of the housing shortage.
Calculated Risk reports that on a year-over-year basis, private residential construction spending is up 16.3% (red line in graph). Non-residential spending is up 6.7% year-over-year. Public spending is down 0.8% year-over-year.
This is resulting in single‐family housing starts in November to jump 11.3 percent above the revised October figure of 1,054,000.
But inventories are still at rock bottom, with unsold inventory at a 2.1-month supply in November, the lowest since January. That’s even lower than 2.3 months in the same month last year, and a 4-to-6-month supply of homes for sale during more normal times.
That is making NAR chief economist Lawrence Yun cautious about affordability in the New Year:
"Buyer competition alone is unrelenting, but home seekers have also had to contend with the negative impacts of supply chain disruptions and labor shortages this year," he said. "These aspects, along with the exorbitant prices and a lack of available homes, have created a much tougher buying season."
How long could it take for the supply of homes available to purchase catch up the demand? It depends on when more working age adults return to the workforce and suppply chains become unchained.
The labor shortages may improve this New Year. As a predictor of Friday’s unemployment report private payrolls rose by 807,000 in December, according to the ADP National Employment Report released Wednesday. That’s the strongest gain since May.
Service sector providers added 669,000 jobs in December. Leisure and hospitality added 246,000 workers. Meanwhile, goods producers added 138,000 jobs, the strongest gain of the year. Manufacturing added 74,000 jobs.
This could begin to improve the housing supply.
Then we must wait for the supply-chains to recover as countries ramp up production and the various trade tariffs are reduced that have driven up the cost of building materials, with lumber prices still higher than in pre-pandemic times.
Harlan Green © 2022
Follow Harlan Green on Twitter: https://twitter.com/HarlanGreen
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