US: All clear on the home front – BMO CM

Sal Guatieri, Senior Economist at BMO Capital Markets, notes that the U.S. housing market expansion is entering its 7th year with no end in sight and the market is off to a great start this year, with sales up more than 3% in January and prices jumping 7% y/y.

Key Quotes

“Last year, total sales rose nearly 5% to a decade high (Chart 1), starts bounced 6%, and prices kept chugging along in the mid-single digits.”

“Of course, the housing market also faces a few headwinds. According to the National Association of Realtors, shortages are holding back sales. Escalating prices in some regions are challenging first-time buyers, especially those with burdensome student debt. Mortgage rates are likely to drift higher as the Fed taps the brakes. Population growth, which has slowed to 0.7% in 2016 from 1.0% a decade ago, won’t pick up if immigration levels are cut. On the supply side, builders will remain hard pressed to find qualified workers to keep up with demand.”

“Bottom Line: It’s never smooth sailing all the time, but with plenty of wind in its sails, the housing market should continue to cruise the high seas for a while, tugging the economy along, and skirting any waves thrown off by the good-ship FOMC.”