August 26, 2019 – In a research note issued yesterday, Goldman Sachs analysts concluded that U.S. housing is likely to improve as a result of homebuilding growth and lower interest rates.
The analysts said:
“Our model points to a healthy rebound to a 4% growth pace of residential investment in 2019H2 and an increase in the total contribution from housing to GDP growth from -0.05pp in H1 to +0.15pp in H2.”
There have been considerable reports, including a recent article by BuyMuni, hypothesizing that the residential market will continue to be weak for the foreseeable future.
Previously hot property markets like Seattle, San Francisco and New York have cooled off since 2018, and the recent decline in mortgage rates have not resulted in materially higher housing activity.
Goldman’s analysts were more sanguine, observing that historical trends point to a substantial lag between lower interest rates and housing activity.
Three headwinds were identified for the U.S. housing market: (1) reduced tax incentives for owner-occupied housing in cities where the Tax Cut and Jobs Act (TCJA) had the most impact, (2) a tight labor market in construction and (3) rising land and regulatory costs made worst by extended times for permit approvals.
Despite the headwinds, Goldman upgraded their housing outlook to reflect an expected boost from home builder activity, increased refinancings, home equity withdrawals and housing wealth effects on consumer spending.
Contact Jumanne Johnson at JJohnson@BuyMuni.com.
