Haunted Housing: The Outlook for Residential Real Estate

Housing is stuck in a prolonged slump, a result of decade-long easy money, costly construction inputs, and restrictive immigration policies. This is leaving home sellers with sluggish demand and buyers feeling priced out. Builders face higher costs for labor and materials, further squeezing new construction.

For portfolios, this housing weakness acts as a drag on economic growth and inflation, potentially prompting the Fed to pause rate hikes soon. Investors can look for stable returns in high-quality fixed income. However, the broader societal impact is negative, hindering homeownership and undermining the middle class.

The path to recovery for housing will be slow. We expect continued weakness in housing starts, with vacancy rates likely drifting higher. Mortgage rates are unlikely to fall significantly below 7% in the near term.