By Hari Kishan and Indradip Ghosh
BENGALURU (Reuters) – U.S. house prices will continue to race ahead over the next two years, according to a Reuters poll of analysts who said any COVID-19 resurgence was unlikely to knock housing market activity off its current upward course.
Last year, most of the world’s largest economies were brought to their knees by the pandemic but record low interest rates and pent-up demand for homes pushed U.S. house prices to levels not seen in more than half a decade.
Despite the U.S. economy on average contracting last year at its sharpest pace since the Second World War, it had little bearing on housing market activity, an immunity the sector was expected to carry this year.
The Jan. 12-Feb. 1 poll of nearly 40 housing analysts forecast the U.S. Case-Shiller house price index to rise 5.7% this year and 4.6% in 2022, the highest since polling began for both periods.
“The U.S. housing market will continue to expand this year, perhaps at a little slower rate than recently as some of the pent up demand has been exhausted, but overall it should be a fairly good year,” said Sal Guatieri, a senior economist at BMO Capital Markets.
(Reuters poll graphic on the U.S. house prices outlook: https://fingfx.thomsonreuters.com/gfx/polling/xklvylrlrpg/Reuters%20Poll%20-%20US%20house%20prices%20-%20Jan%202021.png)
A majority, 19 of 34 analysts who answered an additional question, said U.S. housing market activity this year was likely to accelerate. The other 15 said it would slow.
While renewed restrictions to curb a resurgence of infections has weighed on the near-term U.S. economic outlook, over 85% of analysts, or 30 of 35, said the risk of COVID-19 derailing the housing market in 2021 was either low or very low.[ECILT/US]
Asked what would drive demand for housing this year, 12 of 35 analysts said an economic recovery and 10 respondents picked a desire for more living space. Among the rest, seven chose easy monetary policy and six said a successful vaccine rollout.
“Two factors here: exceedingly easy monetary policy and changes in tastes and preferences away from crowded cities in favor of areas with lower population density. This will likely continue for all of 2021,” said Troy Ludtka, U.S. economist at Natixis.
(Reuters poll graphic on the U.S. housing market outlook: https://fingfx.thomsonreuters.com/gfx/polling/rlgpdgbggvo/Reuters%20Poll%20-%20US%20housing%20graphic%20-%20Jan%202021.PNG)
Although strong demand has led to higher home prices, a shortage of supply was squeezed further with inventory levels falling to a third of what is viewed as healthy. After existing home sales touched nearly 7.0 million units last October – the highest since November 2005 – home builders ramped up construction activity to try and match demand.
Both housing starts and building permits are at levels not seen since the previous housing boom well over a decade ago. Existing home sales were forecast to drop but stay elevated and average around 6.0 million units this year.
Strong demand at a time of a supply squeeze has pushed prices up, and when asked to rate U.S. housing affordability on a scale of 1 to 10 – where one was cheap and 10 expensive – analysts rated it 7.
“It’s not just very strong demand but also record low supply of existing and new homes that’s driving rapid price increases … that will eventually, if it continued, erode affordability,” said BMO’s Guatieri.
(For other stories from the Reuters quarterly housing market polls:)