Will home price appreciation remain strong in the face of modest job growth and the recent uptick in mortgage rates?
Price appreciation is largely driven by the degree to which demand exceeds supply. While the best short-term measure of the housing demand/supply balance is months of supply of homes on the market, the best long-term measure is the ratio of household formations to new home construction. Since household formation data is highly unreliable, we use job growth as the best proxy because there are typically 1.2 jobs per household. Affordability, confidence, and demographic factors determine whether that household rents or buys. We have a great demand model that estimates that demand by price and rent range.
Consider the following: