Declining affordability is a major driver for the current softening in the US homebuilding industry, according to a recent report from Moody’s investors service.
Moody’s assistant vice president Natalia Gluschuk said that the sector would continue to struggle due to affordability given the expectation of slower growth in home prices and mortgage rates, as well as the rise of affordable home inventory coming to market.
The rating agency expects prices to increase only up to 1% on average, compared to growth in the low- to mid-single digit range in recent years, as homebuilders’ pricing power continues to drop.
"To address housing affordability and demand challenges, homebuilders are more intensely pursuing the first-time and entry-level home segment, which we believe will grow faster compared with other product types in the next 12 to 18 months — assuming the economic environment remains healthy," said Gluschuk.
In addition, Moody’s forecasted that millennials would push significant demand for entry-level housing over the next two decades. Millennials represent over one-fourth of the US population and are entering the housing market in growing numbers.