with Taylor St. Germain


This week on TrendsTalk, ITR Economist Taylor St. Germain provides an update on the housing market. While interest rates remain a challenge, there is good news for homebuilders and homebuyers moving forward. Tune in to learn more!


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Taylor St. Germain


Taylor St. Germain

As an experienced economist, Taylor St. Germain provides consulting services for small businesses, trade associations, and Fortune 500 companies across a spectrum of industries. His dynamic personality and extensive knowledge of economic trends and their business relevance are highly valued by clients and colleagues alike.

“Join me on the TrendsTalk podcast to explore the world of economics. Episodes offer insightful discussion and expert interviews. We cover relevant economic concepts in an accessible way. Whether you are a curious layperson or an industry professional, TrendsTalk is your go-to source for thought-provoking analysis and a deeper understanding of the economic forces shaping our world.”

Key Episode Takeaways

  • 0:31 – Good news for the housing market
  • 1:08 – Prepare for consecutive years of growth in the housing market
  • 2:22 – Growth is welcome news for home builders
  • 2:50 – Still a lot of data to unpack for the housing market
  • 3:13 – Housing price-to-income ratio
  • 4:24 – Average mortgage payment in the US
  • 5:08 – Average mortgage payment as a percentage of median income
  • 5:57 – Discussing interest rates and Fed actions
  • 6:40 – Affordability is still a headwind
  • 7:21 – Summary and conclusion

The below transcript is a literal translation of the podcast audio that has been machine generated by Rev.

Hi everyone. My name’s Taylor St. Germain with ITR Economics and welcome to this edition of TrendsTalk. We at ITR Economics are your unbiased and apolitical source of economic intelligence. And today I wanted to discuss the housing market. The last time we discussed the housing market was back in early January, so I felt we’re due for an update this quarter. And generally speaking, we have good news for the housing market, especially if you’re a home builder out there, being that US single-unit housing starts, which is our benchmark for the single-family residential market, has transitioned to the accelerating growth phase of the cycle. That’s not something you often hear come from me today, as most of the economy is weakening when you look at growth rates and historical trends. But the housing market of course, leads the economy, leads the way and we’re seeing some good news, some growth developing in the housing market as we sit here in the second quarter of 2024.

So overall, preparing for consecutive years of growth in this housing market. And I wanted to detail with you our current outlook. So as we look at the single-family housing market, again, we define it using the data series from the Census Bureau as US single-unit housing starts. The annual growth rate is up 7.8% with the quarter-over-quarter growth rate or that three-twelve rate of change, up 27%. Now again, this is a unit series and we’re just shy of 1,000,000 units on a historical twelve-month moving total. So we’ve seen some significant improvement as we look at the last few quarters, to the point where units are actually growing year over year. And so we’re up 7.8% as we sit here today. We do expect the housing market to grow in that mild single-digit range for 2024, and continue to grow into ’25 and ’26. For those trends report viewers, we’re forecasting the housing market to grow in 2025 as well, at 4.5%, and in 2026 at about 3.3%.

So what you’re hearing me say so far is housing has passed the low point in the cycle, the rates of change are now accelerating, and we have three consecutive years of positive growth rates when we look at the number of units that we’re building. This should be welcome news to the home builders who have been through quite a bit of pain as we looked at late ’22 and certainly 2023, to see these growth rates improving. Now there’s still a lot to unpack as it relates to the housing market of course. Everyone’s mind goes to affordability and interest rates, and as our team highlighted in the last trends report, there are still some affordability concerns. Now, again, we expect the housing market to grow for three years, but that’s not to say there still aren’t headwinds that we’re battling through. So our team highlighted that there’s a ratio that we focus on very closely, and that ratio is the price to income ratio, and after the pandemic, that ratio increased to a value of 8.5.

So price to income ratio, eight and a half. And then as we progress further into 2024, that number actually fell down to about seven. So in terms of thinking about affordability from median new home prices to incomes, we are seeing housing become slightly more affordable. So that’s the first metric to call out. That’s some good news and that’s stimulating some of the growth in housing that we’ve seen as of late. We’re also looking at the median sales price of homes here in the US which is sitting at about 418,000 today at the time of this recording. And that’s down from about 480,000 at the peak just a few quarters ago. So again, prices slightly coming down. Now we’re not expecting prices to drop or the bottom to fall out of the housing market by any means, but a little bit of a correction in prices, which is helping out affordability.

And another way that we evaluate affordability is looking at the average mortgage payment here in the US, which is currently sitting at about $2,356, which is a big difference from the $1,200 at the end of 2021, but it is slightly down compared to where we were a quarter ago. And the rates of change for average monthly mortgage payments are actually coming down with the 3/12 rate of change being below zero. Now, we don’t often root for negative growth rates as economists, right? But in this case, negative growth rates are welcoming because that means we’ll continue to see a little bit of alleviation in how much that monthly mortgage payment really is.

Now, I also like to look at the affordability situation by looking at the average mortgage payment as a percentage of median income. So if we think about how much mortgage payments are taking up of median income, that number’s at about 48.9% today, which is an improvement again from about a year ago, which was 57%.

So really what I’m summing up here is that when we look at the housing market in terms of units we’re growing year over year, that momentum is coming back into the housing market. Affordability is mildly improving. Whether you’re looking at price to income ratios, whether you’re looking at average mortgage payments or average mortgage payments as a percent of income, we are seeing these metrics improve in a way that’s favorable for consumers. Now, of course, that brings us to the interest rate conversation, which is of course, mortgage rates and interest rates have a correlation to one another. The Fed still indicates, despite maybe being a little less optimistic than they were at the beginning of the year, that interest rates will be coming down in ’24 in a much more significant decline in interest rates projected by the Fed in 2025. This will continue to help this affordability conversation as we move forward in the coming years, which again comes back to our forecast. Another reason why we expect the housing market to grow, not just this year, but in ’25 and in ’26 as well.

So we’re not out of the woods yet. Affordability is still a headwind. It’s still a challenge, but we are starting to see that improvement and that improvement combined with some significant upticks in the housing market data specifically, has us very optimistic about the prospect for home builders here in the future. So overall, as you’re digesting this housing market trend, we’re preparing for three consecutive years of growth. Now is the time to be hiring, to be investing in efficiencies so that you are able to take on this increased growth if the housing market is one of your demand drivers.

The low point’s behind us, its growth for the next few years, something that we’re excited about at ITR. And we should see more spending as it relates to businesses and consumers in the housing market for years to come.

We’ll continue to keep you updated on the housing market. Our CEO is still holding his podcast Fed Watch to keep you updated on the interest rate and inflation side of this conversation. So continue to tune into that. But so far here in the second quarter, finally, some good economic news to be excited about with this housing market showing some real positive signals for the future.

As a reminder, please like and subscribe to TrendsTalk wherever you listen to your podcast, and I’m looking forward to speaking with you all on the next one. Thanks so much for joining me today.