Low inventories, rising prices keep housing market outlook stuck in neutral
Nationwide economists say affordability could soon weigh on demand
Columbus, OH - For the second quarter in a row, Nationwide’s Health of Housing Markets Report (HoHM Report) is forecasting a neutral outlook for the U.S. housing market. Historically low inventories and rising demand are pushing prices higher and keeping Nationwide’s proprietary Leading Index of Healthy Housing Markets (LIHHM) out of positive territory after nearly an eight-year run.
The LIHHM is unusual among housing market reports as it is a forward-looking measure of housing market sustainability. The dip into neutral territory hinges largely on deteriorating housing affordability that could soon weigh on demand from homebuyers, providing a mixed outlook for housing market growth.
“Most regional markets in the U.S. are still seeing strong demand and a limited number of homes for sale,” said David Berson, Nationwide senior vice president and chief economist. “While the market is stable overall, conditions appear increasingly ripe for prospective homebuyers to put their plans on hold as affordability drops.”
Low unemployment, solid job gains, and above-trend household formation are sustaining demand for homes despite price increases and deteriorating affordability to this point, according to the HoHM Report.
Regional market uncertainty
Berson says that recent housing market data are producing mixed signals at the regional level, as well.
“On one hand, half of all local markets remain in positive territory, suggesting sustainable housing markets over the next year or two,” said Berson. “On the other hand, unsustainably strong price gains are pushing more markets down to neutral and even negative scores.”
In more than two-thirds of the country’s 400 regional markets, house prices gains have accelerated over the past year, becoming increasingly unsustainable. Notable markets that are heating up include:
• San Jose, Calif.: 13.6 pp1 • San Francisco: 7.1• Las Vegas: 6.4• Columbus, Ohio: 3.1• Oakland, Calif.: 3.1• St. Louis: 3.0
On the flip side, price gains decelerated in some markets after multiple years of above-average growth, including:
• Portland, Ore.: -3.51 • Boulder, Colo.: -3.0• College Station, Texas: -2.7• Syracuse, N.Y.: -2.5• Fort Myers, Fla.: -2.3• Dallas-Plano-Irving, Texas: -2.2
The top 10 metro areas with most positive LIHHM scores are, in order: Cedar Rapids, Iowa; Montgomery County-Bucks County-Chester County, Pa.; Gettysburg, Pa.; Camden, N.J.; Atlantic City-Hammonton, N.J.; Watertown-Fort Drum, N.Y.; Chambersburg-Waynesboro, Pa.; Waterloo-Cedar Falls, Iowa; Abilene, Texas; and, Casper, Wyo.
The bottom 10 with the lowest LIHHM scores are: Victoria, Texas; Bismarck, N.D.; Kennewick-Richland, Wash.; Lewiston, Idaho-Wash.; San Jose-Sunnyvale-Santa Clara, Calif.; Corpus Christi, Texas; Albany, Ore.; Spokane-Spokane Valley, Wash.; Anchorage, Alaska; and, Fargo, N.D.-Minn.
More information about the HoHM Report, including the methodology used, can be found at blog.nationwide.com/housing. The HoHM Report is released on a quarterly basis online and in print.
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