Wednesday, April 23, 2014

Weak US household formation pressuring housing markets

Housing remains a weak spot in what otherwise looks like a fairly broad improvement across the US economy. The new home sales report today for example came in materially below expectations.

Signs of this soft patch in housing were already visible over a month ago when lumber futures experienced a significant decline (see chart). Home prices have risen quickly over the past couple of years, and that combined with higher mortgage rates creates a bit of a sticker shock for many potential buyers. Furthermore builders continue to complain about construction costs and tight credit. The biggest issue however remains household formation. As of the end of last year for example, the number of American households was not growing at all (see chart). This is likely due to record low marriage rates as well as a slew of other factors. Whatever the reason, household formation needs to stabilize before we see stronger results in the US housing market.
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