Introduction
In a recent interview, Eric Basmajian, economist and founder of EPB Research, discusses the current state of the housing market, labor market, and overall economic growth. He provides insights into the recent surge in housing supply, rising inventory levels, and their implications on home prices and the economy.
Rising Interest Rates and Depressed Buyer Demand
Interest rates have remained elevated, leading to depressed buyer demand and sales volume. The housing market is experiencing a dichotomy: tight inventory on the existing home side and swelling inventory on the new construction side. This trend suggests a shift towards a looser market with more price pressure.
Labor Market Dynamics
The labor market has seen an increase in unemployment from 3.4% to 4.0%. Job losses have been significant in temporary help services and trucking, while residential construction has added jobs. This mixed picture indicates early signs of a slowdown in the labor market.
GDP Growth Slowdown
US real GDP grew at an annual rate of 1.3% in Q1, down from 3.4% in Q4 2023. The overall economic growth is decelerating, with weak levels in cyclical elements like residential fixed investment and business equipment investment. The economy remains vulnerable, with leading indicators suggesting further slowdowns.
Housing Market Insights
The housing market shows a significant disparity between existing and new home inventories. Existing home inventory is tight with a 3.7-month supply, while new home inventory has a 9.3-month supply. The rising inventory in the new home market indicates potential job losses in residential construction, which could tip the labor market towards a cyclical recessionary slowdown.
Impact on Home Prices
Home prices are likely to face pressure, especially in regions with high inventory levels like Texas and Florida. The national average month supply of homes is 4.5, the highest since 2015, indicating a trend towards higher inventory and potential price declines in certain markets.
Lumber Prices and Construction Slowdown
Lumber prices have fallen to the lowest level since 2023, reflecting slowing demand from the construction sector. Builders are applying for fewer permits due to rising inventory in the new home market, signaling an early slowdown in residential construction.
Small Business Challenges
A significant number of small businesses are struggling to pay rent, indicating financial strain across the sector. This trend could lead to further deterioration in commercial real estate, reflecting broader economic challenges.
Long-Term Economic and Demographic Trends
Basmajian highlights long-term demographic changes, including declining birth rates and real income growth. The US fertility rate has dropped to its lowest level ever recorded at 1.6, driven by economic uncertainty and delayed household formation. This trend mirrors similar declines in other developed nations, exacerbated by unaffordable housing and slow real income growth.
Conclusion
The US housing market is experiencing significant shifts with rising inventory and potential price pressure. The labor market shows mixed signals, and overall economic growth is slowing down. Long-term demographic trends add complexity to the economic outlook, suggesting continued challenges ahead. Eric Basmajian’s insights provide a comprehensive understanding of these dynamics and their implications for the future.
