Weekly Economic Update 02-20-26: Home Builder Confidence; Building Permits & Housing Starts; PCE Inflation; and 4th Quarter GDP

The economy grew much slower than expected in the fourth quarter...well, slower than the "experts" expected.

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Last week, the Federal Reserve Bank of St. Louis released a report that showed empirically what everyone already knew…that homes are the least affordable they have ever been.

“In most U.S. counties, the cost of buying a home has pulled decisively away from what local incomes can support. Repeat-sales data show home values more than doubling since 2000 on average, with many places experiencing price growth well above 200%. Over the same period, real per-capita incomes rose only modestly…a regime where housing is structurally less affordable than it was a generation ago.”

This led me to wonder what the ratio of median home price to median household income is currently? During the inflation spike in 2022, when incomes weren’t growing at all, and prices of everything were soaring, the ratio rose above 5. As of January, it is down to 4.872 (on a 12-month moving average basis). Still historically high, and much higher than it was during the “housing bubble” that led to the financial crisis.

As home prices began rising again relative to income in 2013, the required payments necessary to support the median home rose, but not by too much. That was becasue mortgage rates were down in the 4% range and would get down in the 2.5% range by the end of 2020.