From Buyers to Builders: Assessing the U.S. Housing Market

You're listening to All the Credit, a monthly podcast series brought to you by PGIM, an active global investment manager. Welcome to All the Credit. I'm Brian Barnhurst, global head of credit research. As the post COVID surge in housing demand gives way to more normalized market dynamics, we examine the state of US housing as a cooler labor market, slower economy, and strained affordability collide with a structural shortage of homes, forthcoming policy pronouncements at the federal level, and perhaps most importantly, the onset of a fed rate cutting cycle. I'm very fortunate to be joined today by two of our resident experts, pun intended. Casteb Samant is the head of securitized products research and has extensive experience in the residential mortgage market. John Maxwell covers gaming, lodging, leisure, and housing as a senior credit analyst in the organization. John Kosta, welcome to the podcast. Thanks, Brian. Thanks, Brian. Great to be here. Kosta, we've recently seen healthy performance in mortgage credit and outperformance in housing and housing related equities as the market takes a largely euphoric view on what a rate cutting cycle could mean for the housing market in 2026. How do you square the market's forward expectations with current fundamentals and your own views? It's interesting. The last time I was on this podcast, it felt like it was maybe December 2022, early twenty twenty three, and housing was in a bit of a downturn from a pricing perspective. And it's interesting to be back here again because it feels like we're in a similar position here right now. So just pricing wise, which is large part of what we are concerned about is home prices because that's the risk that we take. Home prices are up two and a half percent or so through June. So home prices in that sense look okay. But if you look in a little bit deeper, month or month, seasonally adjusted prices are actually down. And they've been down the last four months, which is kind of a fancy way of saying home prices aren't doing as well in the summer as they have been in years past. So I think housing in that sense from a pricing perspective is in a slightly bit of a soft spot. But, really, what you have to do is combine that with what you're seeing on the inventory side. So on the inventory side of things, for the last three years, we've been talking about how there's a housing shortage. And I think, Brian, what you said at the start is still true. Like, nationally, longer term, there's a massive housing shortage. We think we're down about, I don't know, 6,000,000 homes or so. But more near term, if you think about where inventories have been, housing supply of existing homes is actually now back to pre COVID levels. And that's been steadily rising since the post COVID environment. There's been a steady increase, and we're back to where we were pre …