BofA with the note:
The economy is facing an imbalance: a burst in demand has been met with constrained supply. Economics 101 tells us that when the demand curve shifts more than the supply curve, prices will rise, which continues until the balance is restored from a combination of slowing demand and greater supply. This narrative describes theUS housing market. Demand for housing climbed higher in the months following the onset of the pandemic, leaving existing home sales to reach a peak of 6.7million saar in October, the highestsince2006. This has left builders to scramble to respond, sending building permits to a high of 1.9million saar in January. The result: home prices and building costs have surged higher.
The long journey to restore the equilibrium has started as existing home sales have come off the highs and housing starts have increased. As we argue below, we think existing home sales will continue to moderate while starts run at a high 1.6 million pace through this year and next until supply has returned to the historical average between 5-6months, eventually allowing home price appreciation to cool. But this will not be resolved overnight–it will be a long journey to balance the housing market.
