How malaise in the U.S. housing market helped fuel the blue wave

The U.S. housing market, historically a major engine of economic growth south of the border, is stuck in a deep freeze. At the same time, the U.S. economy just clocked its fastest growth in a year last quarter.

The disconnect between high-level economic indicators and the everyday reality for U.S. households explains a lot about this week’s stunning midterm election results.

While Bureau of Economic Analysis numbers released last week showed growth in the third quarter was powered by investment – in particular the supercharged artificial intelligence build-out – the housing sector is waving multiple red flags.

Swing voters, economic worries drive decisive blue wave in U.S. midterms

Housing starts plunged sharply in September, the U.S. Census Bureau said last month, extending a weakening trend that has been under way for several years. At the same time the National Association of Home Builders/Wells Fargo Housing Market index, a gauge of homebuilder sentiment, fell to its lowest level in nearly 15 years.

U.S. homebuilders face a litany of challenges that have caused them to pull back on construction activity.

Even before the Trump administration’s crackdown on immigration, the home-building industry faced labour shortages. Mass deportations have only made the job of finding plumbers, roofers and electricians more difficult.

The U.S. government’s tariffs on many of the materials that go into new homes, such as copper, aluminum and lumber, have made them more costly.

On top of all that, rising mortgage rates are sapping demand.

Yet while residential construction activity and sales have plummeted in the U.S., prices have remained high, making affordability pressures for U.S. homebuyers even worse. That fed into the remarkable Democratic sweep in Tuesday’s midterms, in which polls showed the rising cost of living was a top issue.

Canada’s own housing market has been in the grips of a prolonged price slump. After adjusting for inflation, the typical national home price has dropped by roughly 33 per cent from its peak in 2022, while some regional markets are down as much as 45 per cent.

Homebuilders here have faced their own cost and demand challenges, but housing starts in Canada and the U.S. have diverged over the last two years. That’s in part due to policy measures that support home construction, such as government financing programs for purpose-built rental construction.

Decoder is a weekly feature that unpacks an important economic chart.