According to analysts from Wells Fargo, the persistent weakness in the housing sector is due to secular changes and noted, in home sales come at a time when overall economic growth is strong. They scaled back housing forecasts.
Key Quotes:
“Home sales and new home construction continued to lose momentum this past month. While the hurricanes that impacted parts of the Southeast and fires out West likely influenced the data, there is no denying buyer sentiment has weakened considerably as higher mortgage rates have further eroded affordability.”
“Builders also face intensifying margin pressures, as potential buyers demand more affordable product, yet they have seen little to no relief in land development costs and are seeing costs rise for building materials, financing and labor. The pronounced weakness in home sales is particularly vexing because it comes at a time when consumer confidence is near multidecade highs and the unemployment rate is at its lowest level in decades.”
“While the recent slide in home sales was likely prompted by higher interest rates, the persistent weakness in housing is likely due to demographic shifts and the exceptionally high costs of suburban development. These hurdles are unlikely to relent in coming quarters, which means home sales and new home construction are likely to continue to underperform the overall economy and underlying growth in households.”
“We have gradually scaled back our housing forecast to reflect the lower level of home sales and new home construction through the first 10 months of 2018. Home prices are also expected to rise less rapidly, as homebuilders focus on building more affordable homes. After rising 1.1% this year, we expect sales of new homes to rise 1.6% in 2019. Resales of existing homes are expected to rise less than 1%, however, while home price appreciation slows to a 4% to 5% pace.”
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