- The US housing market downturn seems to have reached its end, according to Allianz.
- Homebuilding confidence has returned and prices have seen a modest pickup, according to the German insurer's research.
US house prices are beginning to pick up again and homebuilder confidence is back – signaling the embattled industry is finally turning a corner, according to Allianz.
The housing market is awash with contradiction this year – with prices remaining stubbornly high despite the highest mortgage rates in 20 years. The Fed's aggressive monetary tightening has caused mortgages to shoot up to an eight-month high of 7.22% – which should, in theory, cause home prices to decline.
However, this hasn't held true. We explained last week how prices have remained resilient in the face of high borrowing costs, deterring new buyers from purchasing and new sellers from listing.
Allianz thinks the worst is over for the market.
"The US housing market has been in a downturn over the last two years but it seems to have reached its end," economists at the German insurance-to-asset management behemoth led by Ludovic Subran wrote in a recent research note.
"According to the national accounts, private residential investment slumped more than 20% between Q1 2021 and Q1 2023. However, private housing starts jumped in May as homebuilder confidence is rapidly improving," they added.
A key issue in the current market is the shortage of supply – there are simply not enough homes on the market. A pick-up in construction would widen the available inventory and bridge the affordability gap for buyers, as homebuilders can offer buydowns to potential owners.
Allianz sees construction activity in "a modest recovery mode" as house prices begin to pick up again – albeit at a "sluggish" pace. It is keeping a cautious outlook on the sector – mindful of unfavorable demand-supply dynamics and already-high valuations.
" We expect residential investment to increase by +1% from Q1 2023 to Q4 2023, and +4.3% in 2024," the economists wrote. " Property prices have started to pick up again, but the recovery will be sluggish compared to the last two cycles. They started to pick up again on a monthly sequential basis since February, despite a rapidly improving supply of new units and lackluster demand."