BofA Securities has provided an update on the US housing market midway through the spring home buying season, examining how home buyers and sellers are performing. They note that although inventory increases, supply remains stable over months, indicating that supply is being absorbed by demand. At the same time, high interest rates and tight credit continue to pose challenges for potential buyers.
While mortgage rates and affordability may have improved from last year, interest rates above 7% continue to discourage buyers, BofA said. “With high home prices and high mortgage rates, consumers continue to believe it is not a good time to buy a home,” the analysts said in the note.
The latest research from the University of Michigan shows that 76% of respondents think it is not a good time to buy a home, compared to 74% in March, with high interest rates and tight credit the main reasons (57 %) and high house prices. (54%).
However, in the seller’s market, 61% of respondents think this is a good time to sell, with high prices and good availability being the main reason for 46% of them.
As for inventories, they are ticked higher, pointing to BofA and could make builders more cautious.
“But a higher price-to-rent ratio still indicates a high return on equity for residential starts. We think the contribution of residential investment to real GDP growth should slow, but we do not expect housing construction to retrench,” the analysts said.
The monthly supply of new homes fell from 8.8 months in February to 8.3 months in March, indicating that despite rising inventory, “supply is quickly being absorbed by strong demand.” This trend has also been observed in the existing domestic market.
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All told, BofA believes the housing market is “a story of improving supply and resilient demand.”
“As more supply comes onto the market and mortgage rates remain at stable levels, affordability should also gradually improve. We expect the Fed’s first rate cut to come in December, which should provide additional relief for both buyers and sellers going forward,” the analysts said.
