What is the key to bringing home sale volume up and home prices down? America's current problem is insufficient supply, according to a new report outlining trends in the U.S. housing market.
The Data: Freddie Mac's May macroeconomic report examined key trends in the housing and mortgage market.
While 2024's higher-for-longer interest rate environment remains the most obvious obstacle to lowering home prices, the report emphasized supply as a means to restore the market to balance.
According to the report, vacancy rates—a very low 0.8% for housing and 6.6% for renters—must be restored in line with historical averages to make a dent in housing prices. In the first quarter of 2024, the total number of for-sale and for-rent units was 1.5 million below the balanced supply.
Why it Matters: Home prices have reached record levels in 2024. In June, the median sale price of a U.S. home hit an all-time high of $394,000. The median price for renting has also risen steadily in recent months, albeit showing some signs of slowing.
The rising price of homes has made the American dream of owning a home unsustainable for many Americans, especially members of Generation Z.
Increasing the U.S. housing supply is a logical solution to bringing housing prices down and making shelter affordable for most Americans.
Market Implications: Companies involved in residential construction stand to benefit if there's a push to increase housing supply. These include major homebuilders such as D.R. Horton Inc (NYSE:DHI), Lennar Corp (NYSE:LEN) and PulteGroup, Inc. (NYSE:PHM). Increased demand for new housing units could drive up their revenues.
The iShares U.S. Home Construction ETF (BATS:ITB) and the SPDR S&P Homebuilders ETF (NYSE:XHB) are among the largest exchange-traded funds tracking the home construction sector. The iShares U.S. Basic Materials ETF (NYSE:IYM) tracks materials, some of which are used in construction.
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