Tuesday, November 5, 2013

Two potential headwinds for the US housing market

While the US housing market remains relatively robust, it is likely to face a couple of headwinds going forward. One is the lower affordability index, which is declining due to higher prices and higher mortgage rates (see discussion). On a year-over-year basis the declines have been quite steep.

The second trend that will detract from demand for homes is the recent slowdown in net household formation. The chart below shows the year-over-year change in total number of US households. This decline in the "formation rate" is likely to be transient (simply because of population growth), but it is not helpful for the housing market nevertheless.

Estimate by the United States Census Bureau

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