21Q3 Housing Market Update

The housing market has been quite strong since shortly after the onset of the pandemic, fueled by low interest rates, pent-up demand and a strong desire among urban apartment dwellers to escape the coronavirus.  New home sales from May 2020 until April 2021 were estimated at an average annual pace of 900,000 units, the highest since 2006.  Pending sales of existing homes have followed a similar pattern.  After the slowing of sales from an unsustainably high pace this past spring, there are tentative signs that sales are on the rise again, but there are also legitimate questions about the likely strength and durability of the rebound.

Current economic conditions do not, in my view, support a sustained rebound back to the peak 2020-2021 levels.  There are also risks to the downside.  Future home sales could decline if employment remains well below pre-pandemic levels and house prices continue to climb.

The still uncertain course of the pandemic has restrained the recovery in employment, but the receding of the Delta variant combined with the expiration of generous unemployment benefits could (or at least should) coax many people back into the labor market and provide a boost to consumer confidence.  The high pace of inflation, exacerbated by supply chain disruptions, also raises uncertainty about the likely course of interest rates and heightens concerns about its impact on economic growth.

Despite these uncertainties, my forecast expects that the housing market will achieve a soft landing – i.e. it will slow to a sustainable growth rate in the low single-digits.  Along with this, I anticipate that the broader economy will likewise succeed in slowing its rate of growth to a sustainable pace of around 2% and that high inflation will prove to be transitory (at least in the short- to medium-term).  My forecast is consistent with the general view of economists. Without a crystal ball that identifies the time and likely magnitude of key turning points, it is hard to predict a course for the economy and housing market that is much different from this baseline.  To do otherwise is speculative with a very high probability that it will be wide of the mark.  Furthermore, the key assumptions upon which this baseline forecast is based – for example, the transitory effects of inflation – are supported by causal factors.  We can identify what is currently driving inflation, but have no sound basis for concluding that these factors will sustain inflation at its current mid-single-digit rate.  In fact, it seems more likely that when the dislocations that have sparked inflation are addressed, prices will stabilize or even recede.

The above is a brief summary of my 21Q3 Housing Market Update report dated October 25, 2021. To obtain a copy of the full report, give me a call or email me.

October 29, 2021

Stephen P. Percoco
Lark Research
839 Dewitt Street
Linden, New Jersey 07036
(908) 975-0250

© 2015-2024 by Stephen P. Percoco, Lark Research.   All rights reserved.

This blog post (as with all posts on this website) represents the opinion of Lark Research based upon its own independent research and supporting information obtained from various sources. Although Lark Research believes these sources to be reliable, it has not independently confirmed their accuracy. Consequently, this blog post may contain errors and omissions. Furthermore, this blog post is a summary of a recent report published on this subject and that report provides a more complete discussion and assessment of the risks and opportunities of any investment securities discussed herein. No representation or warranty is expressed or implied by the publication of this blog post. This blog post is for informational purposes only and shall not be construed as investment advice that meets the specific needs of any investor. Investors should, in consultation with their financial advisers, determine the suitability of the post’s recommendations, if any, to their own specific circumstances. Lark Research is not registered as an investment adviser with the Securities and Exchange Commission, pursuant to exemptions provided in the Investment Company Act of 1940. This blog post remains the property of Lark Research and may not be reproduced, copied or similarly disseminated, in whole or in part, without its prior written consent.

This entry was posted in Housing, Real Estate and tagged , , , . Bookmark the permalink.