by Parker Ross, Senior Vice President, Chief Economist, Arch Capital Services LLC, and Leonidas Mourelatos, Director of Real Estate Economics
– Issue 3-2022
The U.S. housing market is entering a period of transition that — in the end — will be healthy for its long-term health. While we peg the odds of a recession in the next year at roughly 50%, solid but slowing consumer spending and a strong labor market underpin our base view for a soft-landing scenario. This would include
real GDP growth slowing to a crawl, the unemployment rate rising gradually and national home-price appreciation easing while remaining positive.
For the housing market, this will be an ideal scenario for a rebalancing of the market, with home-price growth slowing meaningfully while allowing income
growth to catch up to the pandemic era’s home-price gains. Over the medium to long term, this will improve affordability and reinvigorate demand to a more sustainable level.
In addition to our outlook for a normalization of demand and gradually improving affordability, the other key factor bolstering a soft landing for national home prices are the long-term fundamental shortage of homes. As we discussed in detail in the Fall 2021 Housing and Mortgage Market Review® (HaMMRSM), the overall inventory of homes remains exceedingly tight following years of underbuilding in the wake of the Global Financial Crisis (GFC). Based on our prior analysis of U.S. Census Bureau data, we estimated the U.S. was short 4 million homes as of 2020, the latest year with complete official data.