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- Housing market activity has slowed considerably this year with the soaring of mortgage rates to levels last seen in 2008. The NAR estimates homebuyer affordability fell in Q2 to a level just above what sees the national median income family being able to afford a median-priced home, whilst, further hindered by rampant house price growth since the pandemic, first-time buyer affordability is the worst since 3Q06.
- Against that backdrop, it is unsurprising that residential investment – capturing both construction of new houses and renovations – has already started to weigh on GDP growth, dragging -0.2pps from year-ago GDP growth in both 1Q22 and 2Q22. This is already of similar size to the peak drag from the housing slowdown in 2018/19 but far smaller than the sustained -1pps through 2007-09.
- Housing starts, which feed through more directly to residential investment, have rolled over but it’s sales that so far have led by move lower with existing home sales seeing six consecutive monthly declines for a 25% drop. Should starts follow suit it could have an increasingly large drag on GDP growth in the near-term.
Fig 1: Housing Activity, Mortgage Rates and Residential Investment Contribution To GDP Growth
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