Line chart showing housing inventory and U.S. existing home sales from January 2007 to November 2023. During that period, the existing home sales seasonally adjusted annual rate (SAAR) generally exceeds inventory. In November 2023 housing inventory was around 1.6M. In November 2023, U.S. existing home sales SAAR was around 3.8M.
Line chart showing the ratio of total unsold inventory of resold homes to sales and the ratio of number of housing starts per 100,000 households from January 2007 to November 2023. From 2007 starts per 100,000 households declined significantly, from a ratio of nearly 15 starts per 100,000 households to about 5 starts in 2009. Since then, the ratio has increased to just over 15.6 starts by November 2023. Meanwhile, the unsold inventory of resold homes to sales, which peaked at 11.9 in July 2010, has since declined to 3.5 in November 2023.
Line chart showing housing units authorized by building permits vs. housing market index from January 2007 to December 2023. Housing units data is as of November 2023. Both measures fell during the Great Financial Crisis and had increased up until the pandemic. Housing units authorized by building permits fell less during the start of the pandemic and recovered but started falling in 2022. The housing market index had a deep drop during the start of the pandemic, recovered, and then has fallen significantly since 2022. The housing market index has increased for most of 2023 but decreased in December and remains well below the 2021 high.
Line chart showing a housing affordability index from January 2007 to October 2023. The index 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 under 188 in January of 2021. As of October 2023, the index was at 91.4 after falling heavily.
Sources: Bloomberg, U.S. Census Bureau, and Wells Fargo Investment Institute. Monthly data from January 1, 2007 to November 30, 2023. NAHB/Wells Fargo Housing Market Index: monthly data from January 1, 2007 to December 31, 2023. NAR Housing Affordability Index: monthly data from January 1, 2007 to October 31, 2023. 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
- Our view is that affordability, driven to a multi-decade low, will contribute to the economy’s slowdown by squeezing home demand, despite tight inventory created by the same “spike” in mortgage rates discouraging homeowner trade-up activity.
- A loss of housing momentum is undercutting broader support to economic activity through its large ripple effect on other parts of the economy. Housing construction’s sub-5% share of gross domestic product translates to 10% – 15% when considering its effect on employment, manufacturing, and big-ticket consumer spending on appliances and home furnishings.