U.S. Outlook: How slow can the housing market go?

Scott Anderson
Posted by Scott Anderson
Chief Economist

Much of the recently released U.S. housing market data has been on the weaker side.

Housing being built on a small hill, with wooden scaffolding surrounding much of it. Lovely sunrise is shining above the horizon.For more on this, see highlights of my report below, followed by a link to the full U.S. Outlook, delivered on August 24.

Key observations:
  • After peaking at 6.7% of GDP in the third quarter of 2006, residential investment as a share of GDP declined for 14 successive quarters, reaching a nadir of 2.4% in the third quarter of 2010.
  • Despite the recent weakness in the housing data, home prices continue to rise, largely due to low inventory.
  • Even though existing home prices have increased year-over-year for 77 consecutive months, prices relative to income are still nowhere near the levels seen just prior to the last housing downturn.
  • Our forecast calls for a continued gradual slowdown in the housing market, which is typical for the late state of an economic expansion.

Read my full report.

Reminder: All comments are moderated prior to publication and must follow our Community Guidelines.

  • Anonymous says:

    I have a hunch (no stats) but the 2008/9 was a recession for the country but a depression for home builders. The mega home builders (Pulte, KB, Lenar, Shea) suffered but had diversified financial sources to make it through. Different story for the mid sized home/regional builders who went out of business.

    Now that housing demand has returned, these mid sized home builders are not there and the industry does not have the capacity to quickly ramp up to meet the market’s needs–hence continued under supply relative to over demand will continue to put price pressure on existing home prices.

    Reply | 8 months ago

Submit an Idea

[contact-form-7 id="32" title="Share An Idea"]

You are leaving the Bank of the West Change Matters site. Please be aware: The website you are about to enter is not operated by Bank of the West. Bank of the West does not endorse the content of this website and makes no warranty as to the accuracy of content or functionality of this website. The privacy and security policies of the site may differ from those practiced by Bank of the West. To proceed to this website, click OK, or hit Cancel to remain on the Bank of the West Change Matters site.