05/17/24 11:23 AM EDT

Market Situation Report Bonus Chart: Housing

Below is a chart and brief excerpt from today’s Market Situation Report written by Tier 1 Alpha. If you’re interested in learning more about the Hedgeye-Tier 1 Alpha partnership, there’s more information here.

Another week, another record-high median home asking price, now at $418,455. If you're keeping score, that's an increase of 22% in three years, despite the 30-year mortgage averaging 6.85% in April – very similar to mortgages we saw in 2002. Not unprecedented by any means. The average monthly mortgage payment is $2,883 on a 30-year fixed loan in a country where median family income is $93,000 a year. That's 37% of family income on mortgage -- ignoring insurance, maintenance, property tax, etc. It's hard to fathom why everyone seems angry.

In yesterday's housing starts data, the US saw a 5.7% month-over-month increase to an annualized rate of 1.36 million in April 2024, rising from a downwardly revised 1.287 million level in March. Figures came in below forecasts of 1.42 million, as high rates and home prices continue to weigh on home builders. Single-family housing starts moved down 0.4% to 1.031 million, but the rate for units in buildings with five units or more surged 31.4% to 322,000. The one data point we'll be watching closely is building permits, a leading indicator, which are down 3% month-over-month. The US market is still short of supply, but how sustainable is this? Particularly as commercial conversions to residential are growing rapidly.

We always keep the German housing market in the back of our minds – a supply-constrained market where the ECB is raising rates from near-zero levels. Home values there are down more than 20% from the 2022 peaks. The demand side of the equation ultimately plays a role even in a supply-constrained environment and the evidence is that homebuyers are NOT getting used to higher rates -- rather they hoped they would retreat in a timely fashion. With those hopes fading, we suggest that the hot US housing market may be poised for a retreat.