BofA Securities has provided an update on housing in the US, halfway through the spring home-buying season, examining how home buyers and sellers are performing. They observe that while inventory is increasing, months’ supply remains stable, indicating that supply is being absorbed by demand. At the same time, high interest rates and tight credit continue to pose a challenge to potential buyers.
While mortgage rates and affordability may have improved compared to last year, rates above 7% continue to dishearten buyers, said BofA. “With high home prices and elevated mortgage rates, consumers continue to believe that it is not a good time to purchase a home,” said the analysts in the note.
The latest University of Michigan survey reveals that 76% of respondents think it is not a good time to buy a home, compared to 74% in March, with the main reasons cited being high interest and tight credit (57%) and high home prices (54%).
In the seller’s market however, 61% of respondents think it is a good time to sell, with high prices and good availability being the main reason for 46% of them.
Coming to inventories, these have ticked higher, points out BofA and could make builders more cautious.
“But an elevated price-to-rent ratio still points to a high return on equity for housing starts. We think the contribution of residential investment to growth in real GDP should slow, but we do not expect housing to retrench,” added the analysts.
The months’ supply of new homes fell from 8.8 months in February to 8.3 months in March, indicating that despite increasing inventories, “supply is being quickly absorbed by strong demand.” This trend has been observed in the existing home market as well.
All things considered, BofA believes the housing market is “a story of improving supply and resilient demand.”
“As more supply hits the market and mortgage rates remain at steady levels, affordability should also improve gradually. We expect the first Fed rate cut to happen in December, which should provide additional relief for both buyers and sellers going forward,” added the analysts.