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Economic Research: Limited Supply Poses A Barrier To The U.S. Homebuying Dream

U.S. homebuying activity took a breather in December amid the holiday buying season. After existing home sales climbed higher over the prior three months, in December they declined by 4.6% from the previous month to a seasonally adjusted annualized rate of 6.18 million--below consensus expectations of 6.43 million. Actual existing home sales rose to 6.12 million in 2021 from 5.64 million in 2020, reaching their highest annual level since 2006, helped by low interest rates, a strong jobs market, and high stock prices that supported healthy household balance sheets.

Slim picking was a major culprit behind the December decline. Existing home inventories fell to a historical low of 910,000, with the month's supply falling to just 1.8 months in December. Given the limited supply, existing home prices remained near their record high ($363,800 in June) at $354,300. Despite rising home prices, however, monthly mortgage purchase applications in November and December rose 6.6% and 0.5% month over month, respectively.

Prices for new home sales are also hot, with the median price reaching an all-time high of $416,900 in November, from a prior record of $408,700 (was $407,700) the month before. We expect new home sales to climb by 0.8% to 750,000 for December. Robust demand for homes and strong new home construction activity over the past two months should support supply in 2022, though supply roadblocks could limit just how fast homes can come to market.

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The large housing supply gap has kept homebuilders busy. Housing starts went higher in December, climbing by 1.4% over November to 1.70 million (seasonally adjusted annual rate). Housing permits, a leading indicator of residential construction activity in the months ahead, shot up by 9.1% from their November level to 1.87 million (seasonally adjusted annual rate). Both indicators stayed above their values from December 2020.

But while demand to build is there, lingering supply bottlenecks continue to delay construction. Limited materials, labor, and building lots, as well as higher prices for what's available, will likely continue to temper the pace of new home construction. Housing completions went 8.7% below their November reading in December, to 1.30 million, and 6.6% below their level a year ago.

Table 1

Review Of U.S. Economic Indicators
Release date Measurement Nov-21 Dec-21 Jan-22 Level year ago Year over year
Labor market
Four-week moving average of initial claims 1/13/2022 in 000 240 200 231 866
Unemployment rate 1/7/2022 % 4.2 3.9 6.7
All employees, total nonfarm 1/7/2022 change in 000 249 199 (306)
All employees, total private 1/7/2022 change in 000 270 211 (274)
Average hourly earnings of all employees, total private 1/7/2022 m/m,% 0.4 0.6 4.7
Average weekly hours of all employees, total private 1/7/2022 hours of work 34.70 34.70 35
Total nonfarm private payroll employment 1/5/2022 change in 000 505 807 (76)
Labor force participation rate 1/7/2022 % 61.9 61.9 61.5
Job openings: total nonfarm 1/4/2022 millions 10.6 6.8
Consumer spending and confidence
Personal income 12/23/2021 m/m,% 0.4 7.4
Real disposable personal income 12/23/2021 m/m,% (0.2) 0.0
Personal consumption expenditures 12/23/2021 m/m,% 0.6 13.5
Personal saving rate 12/23/2021 % 6.9 13.0
Total vehicle sales 12/23/2021 millions 13.3 16.3
University of Michigan: consumer sentiment 1/12/2022 index 67.4 70.6 68.8 79.0
Advance retail sales: retail trade and food services 1/14/2022 m/m,% 0.2 (1.9) 16.9
Advance retail sales: retail trade 1/14/2022 m/m,% 0.1 (2.1) 14.4
Industrial activity
Industrial production: total index 1/14/2022 m/m,% 0.7 (0.1) 3.7
Industrial production: manufacturing (ICS) 1/14/2022 m/m,% 0.7 (0.3) 3.7
Total business inventories 1/14/2022 m/m,% 1.3 8.7
Capacity utilization: total index 1/14/2022 index 76.6 76.5 74.1
Current general business conditions; diffusion index for New York 1/18/2022 index 30.9 31.9 (0.7) 3.5
Chicago Fed National Activity Index 12/22/2021 index 0.4 0.3
Current general activity; diffusion index for Federal Reserve District 3: Philadelphia 12/16/2021 index 39.0 15.4 11.1
Housing
New privately owned housing units started: total units 1/19/2022 millions 1.68 1.7 1.66
New privately owned housing units authorized in permit-issuing places: total units 1/19/2022 millions 1.72 1.87 1.76
New privately owned housing units completed: total units 1/19/2022 millions 1.42 1.29 1.39
Monthly supply of houses in the U.S. 12/23/2021 months 6 4
Total construction spending: total construction in the U.S. 1/3/2022 m/m,% 0.4 9.3
External trade
Trade balance: goods and services, balance of payments basis 1/6/2022 billions (80.2) (67.3)
Exports of goods and services, balance of payments basis 1/6/2022 billions 224.2 185.2
Imports of goods and services, balance of payments basis 1/6/2022 billions 304.4 252.5
Import Price Index (End Use): All Commodities 1/14/2022 m/m,% 0.7 (0.2) 10.4
Export Price Index (End Use): All Commodities 1/14/2022 m/m,% 0.8 (1.8) 14.7
Prices
Producer Price Index by commodity: final demand 1/13/2022 m/m,% 1.0 0.2 9.8
Producer Price Index by commodity: final demand: finished goods less foods and energy 1/13/2022 m/m,% 0.6 0.6 6.5
Consumer Price Index for all urban consumers: all items in U.S. city average 1/12/2022 m/m,% 0.8 0.5 7.1
Consumer Price Index for all urban consumers: all items less food and energy in U.S. city average 1/12/2022 m/m,% 0.5 0.6 5.5
Personal Consumption Expenditures: chain-type price index 12/23/2021 m/m,% 0.6 5.7
Personal Consumption Expenditures excluding food and energy (chain-type price index) 12/23/2021 m/m,% 0.5 4.7
Note: Data retrieved from FRED, Federal Reserve Bank of St. Louis; https://fred.stlouisfed.org/. m/m--Month over month. Last three months selected. Yearly data is either year-on-year change (%) or level value year ago. Total nonfarm private payroll employment is from ADP. University of Michigan: consumer sentiment is extracted from http://www.sca.isr.umich.edu/. Data retrieved on Jan. 20, 2021

Table 2

Economic Release Calendar
Date Release For Forecast Consensus Previous
25-Jan Consumer confidence Jan 109.0 111.5 115.8
26-Jan Advance trade in goods (bil. $) Dec (95.00) (96.10) (98.00)
New home sales (mil.) Dec 0.750 0.763 0.744
27-Jan GDP advance report (%) Q4 5.3 5.5 2.3
Chain price index advance report (%) Q4 5.8 6.0 6.0
Durable goods orders (%) Dec (0.4) (0.5) 2.6
Initial jobless claims 1/22 265.0 255.0 286.0
28-Jan Employment Cost Index (%) Q4 1.1 1.2 1.3
Personal income (%) Dec 0.5 0.5 0.4
Personal consumption expenditure (%) Dec (0.1) (0.5) 0.6
University of Michigan Consumer Sentiment (final) Jan 68.0 68.8 68.8
31-Jan Chicago PMI Jan 64.0 62.5 64.3
1-Feb ISM (Manufacturing) Jan 59.0 58.8 58.7
Construction spending (%) Dec 0.7 0.7 0.4
2-Feb ADP employment survey (000) Jan 210 210 807
3-Feb Nonfarm productivity (prelim, %) Q4 3.0 2.6 (5.2)
Unit labor costs (prelim, %) Q4 1.0 1.2 9.6
Factory orders (%) Dec 0.2 0.3 1.6
ISM-NMI Jan 61.0 61.4 62.0
4-Feb Nonfarm payrolls (000) Jan 220 235 199
Private nonfarm payrolls (000) Jan 200 226 211
Manufacturing payrolls (000) Jan 25 25 26
Unemployment rate (%) Jan 3.9 3.9 3.9
Average hourly earnings (%) Jan 0.5 0.5 0.6
Hours worked Jan 34.8 34.8 34.7

The views expressed here are the independent opinions of S&P Global's economics group, which is separate from, but provides forecasts and other input to, S&P Global Ratings' analysts. The economic views herein may be incorporated into S&P Global Ratings' credit ratings; however, credit ratings are determined and assigned by ratings committees, exercising analytical judgment in accordance with S&P Global Ratings' publicly available methodologies.

This report does not constitute a rating action.

U.S. Chief Economist:Beth Ann Bovino, New York + 1 (212) 438 1652;
bethann.bovino@spglobal.com
Contributor:Shuyang Wu, Beijing
Research Contributor:Shruti Galwankar, CRISIL Global Analytical Center, an S&P affiliate, Mumbai

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