Rising sales lead to tighter U.S. housing market

Rising sales and a limited number of existing homes entering the U.S. market have led to extremely tight market conditions and rising home prices, according to a client note from Capital Economics.

Existing hme sales are up 16% since the beginning of the year, and housing starts have risen 10% in the same period, according to Capital Economics property economist Matthew Pointon.

“Second quarter GDP growth turned out to be much stronger than originally estimated, with an upwards revision from 2.3% to 3.7% annualized,” he said. “The reading of 0.6% in the first quarter therefore looks increasingly like a weather-related blip. With the economy gaining momentum, growth should be a respectable 2.5% in the third quarter.”

While home prices in the U.S. have been increasing, that growth is slowing down, Capital Economics reports. That slowdown, combined with low mortgage rates, has meant that mortgage payments as a share of income have been a little lower than usual – around 16% – for the last year.

“While an expected rise in mortgage rates – and return of house price growth – will lead to some increase in the burden of mortgage payments, it will be some time yet before they reach their long-run average of over 20% of median income,” Pointon said.

MPA

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