Line chart, housing demand vs. supply
Y-axis: Thousands; x-axis: 2007 – 2021.
Existing home sales SAAR generally exceed housing inventory. In early 2007 sales are near 5.7 million with inventory near 3.6 million. By 2008 inventory briefly exceeds sales, but late in the decade sales again recover vs. inventory. By late 2010, sales and inventory are briefly about equal. Since 2010 U.S. existing home sales have significantly exceeded housing inventory, with recent home sales between roughly 5 and 5.5 million, and inventory fluctuating roughly between 1.7 and 2.2 million. At the end of February 2020, existing home sales reached over 5.7 million before dropping to 3.9 million by the end of May, when housing inventory stood at just over 1.8 million. By late August, sales were at 6 million while inventory was near 1.8 million, and by late November 2020 sales were near 6.7 million with inventory near 1.6 million. As of late August 2021, sales were 5.9 million and inventory was near 1.7 million.
Line chart, ratio of housing starts vs. number of months’ supply per 100,000 households.
Y-axis: Months supply; x-axis, 2007 – 2021.
From 2007 starts per 100,000 households have declined significantly, from a ratio of more than 14 starts per 100,000 households to about 5 starts per 100,000 by 2009. Since 2012 the ratio of starts per 100,000 households has climbed from roughly 9 starts per 100,000 households to about 16 by early 2020. From there housing starts dropped sharply to just over 10 by the end of May.
Meanwhile, the ratio of the number of months’ supply per 100,000 households increased from about 7 in 2007 to just over 12 in early 2009. From 2009 to March 2013 the ratio decreased to just over 4. Since then, the ratio of supply has fluctuated from about 4 to 7.5. In August 2020 it stood at about 3.3. By the end of November 2020, supply was just over 4 months, with the ratio of supply per 100,000 households stood near 15.5. As of late August 2021, supply stood at just over six months, with the ratio at 16.2.
Line chart, housing units authorized vs. housing market index
Left y-axis: NAHB/Wells Fargo Housing Market Index; right y-axis: Housing units authorized by building permits (in thousands), x-axis: 2007 – 2021.
Authorized housing units fell from 1.6 million in 2007 to less than 600,000 by 2009. At the same time, the housing index fell from near 40 to 8 by 2009. Since 2012, however, improvement in the housing index has exceeded housing units authorized by building permits. In recent years, both the index and authorized units have leveled somewhat. By February 2020 the index stood at 74, then fell to 30 by the end of April, recovering to 83 by Q3 end. Meanwhile, authorized housing units, at over 1.3 million in March, fell to just over 1 million by the end of April, recovering to about 1.5 million by the end of August. By the end of Q3 2021, the housing index stood at 75, while authorized housing units at the end of July were near 1.6 million.
Line chart measures whether a typical family could qualify for a mortgage on a typical home.
Y-axis: Index Level; x-axis: 2007 – 2021.
NAR Housing Affordability Fixed Mortgage Index—U.S. increased from near 120 in 2007 to a peak of roughly 208 in 2013. It declined amid some volatility to about 138 in 2018, and rose to just over 170 in July of 2020, ending November near 168. As of late July 2021, the index was near 150.
Sources: Bloomberg, FactSet, and Wells Fargo Investment Institute. Monthly data from January 1, 2007 to August 31, 2021. NAHB/Wells Fargo Housing Market Index: monthly data from January 1, 2007 to September 30, 2021. NAR Housing Affordability Index: monthly data from January 1, 2007 to July 31, 2021. SAAR = seasonally adjusted annual rate. NAHB (National Association of Home Builders)/Wells Fargo Housing Market Index is a widely watched gauge of the outlook for the U.S. housing sector. The NAR (National Association of Realtors®) Housing Affordability Index measures whether or not a typical family could qualify for a mortgage loan on a typical home.
Key Takeaways
- The housing boom risks becoming a victim of its own success as soaring home prices squeeze affordability and the economy’s reopening encourages a partial rotation from the suburbs back to urban areas.
- A cooling housing market poses risk to an important tailwind to the economic recovery, directly and indirectly, through its sizable ripple effect on other parts of the economy.