The recent improvement in the housing data with regard to starts and new home sales has also resulted in an improvement in sentiment among the homebuilders. However, the situation might not be quite as stable as it seems on the surface. The inventory of new homes is starting to fall, largely because there is no competition from existing homeowners, who are keeping their homes off the market.  Yet as the economic situation deteriorates, more existing homeowners will start to put their homes on the market out of necessity and to get ahead of expected further price declines. Furthermore, there looks to be a pipeline of new homes still under construction and yet to come to market.  

Consumers are keen to purchase new or existing homes but are also still finding affordability to be a major hurdle. With mortgage rates above 7%, applications have shown no signs of improving, and a higher-than-normal share of purchases have been cash deals. While the homebuilders have been a little more upbeat about the situation, the incentives they have been offering have been cutting into margins, and without any improvement in mortgage rates and more supply coming to market, prices will continue to be under pressure.  

A glance at the structural supply and demand picture, however, suggests that many of these dynamics are cyclical in nature. There is both a structural shortage of homes and a steady demand emerging from the large cohort of millennials who are finally moving away from rentals in the city to single-family homes in more suburban areas.