Fitch: Solid Demand, Home Price Growth Will Continue to Boost U.S. Housing Economy
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The U.S. residential housing economy, which represents about 17% of GDP, will likely continue growing in second-half 2024 despite unaffordability due to high home prices and mortgage rates, according to Fitch Ratings, Chicago/New York.
“This expansion supports the credit profiles of homebuilders, with home price growth and the tight labor market underpinning low mortgage delinquencies,” Fitch said in a special non-rating report, U.S. Cross-Sector Housing Monitor. (subscription)
Fitch noted the large millennial generation is now driving household formation and housing demand, which remains above long-term averages as reflected in the percentage of homes sold above list price. “The disparity between relatively resilient demand trends and much weaker sales, as well as multi-decade low rental and homeowner vacancy rates, underscore the tight housing market.”
Housing prices have jumped more than 45% since 2020, driven largely by low inventory. “While new construction may be necessary to create slack in the market, over the longer term, the rebalancing needed to alleviate price pressures will originate from lower rates that ease the lock-in effect,” Fitch said. It projects that 30-year mortgage rates will end 2024 at around 7% before falling into the 6% range next year.
“Residential mortgage delinquencies remain near their lowest levels in years,” the report said. “Nevertheless, the average mortgage payment on newly originated loans has nearly doubled versus loans originated in 2020, and increasing tax and insurance payments contribute to higher all-in housing costs, which may pose payment shock risk.”
Fitch said it expects single-family housing starts to improve 3.4% this year and multifamily starts to fall to levels in line with 2018–2020 averages. Multifamily starts have declined more than 30% year-to-date against a backdrop of higher cost of capital, tighter lending standards and slower rent growth.
