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1. Signs of Life in the Residential Housing Market, But Don’t Get Too Hasty.
The housing market readings are coming in varied and often confusing. In truth, many of the indicators are lagging and perhaps have not caught up with others. For instance, as 10-Year Treasury bonds have fallen in recent weeks, which has helped soften mortgage rates. As a result, in early February, applications for mortgage refinancings surged by 128% Y/Y and new applications for new mortgages jumped by 8% Y/Y. Those are positive signs and could signal that a turn is in the works in the residential housing market. The National Association of Realtors remains positive with an expected annual growth outlook of 8% for new home sales and existing home sales growing by perhaps as much as 14% in 2026.
But other measures tell the opposite story, with the risk of data lags being a factor. For instance, housing starts and permits data for December were finally released and they showed significant weakness across the board. Total permits were down 2.2% Y/Y and starts were down 7.3%. Single family permits were down sharply by 10.9% Y/Y and starts were sluggish, falling by 9%. In addition, the National Association of Home Builders monthly Housing Market Index fell a point to 36 (the long term average is 51; with the northeast and midwest each at 43 points and the south at a surprisingly weak 35 and the west at 33. Sentiment measures can be fickle, and they can change quickly. But the permit and starts data are more structured and take longer for a reversal of trend to take place.
The importance of this sector cannot be understated; a healthy residential housing sector can generate as much as 16% of GDP and each new home generates demand for 7 full truckloads of fixtures and internal materials (not including the exterior). It more than matters to the overall economy, it is critical.
Additional Reading: https://www.cnbc.com/quotes/US10Y ; https://fred.stlouisfed.org/series/PERMIT ; https://www.nahb.org/news-and-economics/housing-economics/indices/housing-market-index
2. The Great Wealth Transfer and Real Estate
New data shows that more than $20 trillion in wealth will transfer from the Silent and Baby Boomer Generations to younger generations by the end of 2030. Following that will be an estimated $25 trillion between 2031 and 2035 and another $30 trillion between 2036 and 2040 before it begins to flatten. Aside from removing debt, many younger households have already shown a desire to use some of this newfound wealth to change their living conditions, and many will opt to find property and build the “house of their dreams”. That is helping boost the custom home market today, and will provide stimulus for spending in the years ahead.
Although the transfer of wealth is not new, this coming cycle is different because the scale is unprecedented. With more than $124 trillion transferring before 2048, more than 4 times annual US GDP. Granted, with people now living longer, a larger percentage of this wealth will be consumed on health care expenditures in the coming years and may limit ultimately what will be transferred to younger generations.
Lastly, the impact will come in unexpected waves – which will make it difficult to forecast and predict. Sporadic transfers will lead to unexpected waves of spending – and subsequent slowdowns that are also difficult to pinpoint. That could also make it difficult to determine accurate property valuations and forecast appreciation or depreciation in asset prices. In short, this will create a volatile market environment, one in which many firms and individuals will need solid advice and counseling.
