The central quandary about the U.S. housing market in 2024 is this: Higher interest rates have caused home sale activity to fall, but contrary to the usual pattern, they haven't done much damage to homebuilding and construction employment.

Why it matters: The reasons behind the disconnect help explain the overall economy's striking resilience — and shed light on what happens from here.

State of play: "A quick glance at a chart of home sales and construction should give a sense that something fishy is going on," J.P. Morgan chief U.S. economist Michael Feroli writes in a note this week.

• In the final months of last year, existing home sales were lower than at any time in the 2010s, he notes.
• Yet housing starts — the amount of new construction undertaken — were higher than at any time in the 2007 to 2020 window.

By the numbers: Based on historical correlations, Feroli finds that the upward shift in interest rates and move down in home sales should translate into 600,000 fewer construction jobs than we actually have seen.

Between the lines: That, in turn, helps explain why the overall U.S. labor market has proven resilient even as the Federal Reserve raised interest rates by more than 5 percentage points in 2022 and 2023.

• Monetary tightening typically slows the economy, in large part by crushing homebuilding activity. But in this cycle, the resilience of homebuilding is part of the reason GDP and job growth have kept on chugging despite higher interest rates.

The big picture: The mortgage lock-in effect — in which people with ultra-low-rate mortgages taken pre-2022 are staying in place rather than selling, given the surge in rates since then — appears to be holding down inventory of existing homes for sale.

• The homebuilding industry is picking up the slack as best as it can with new construction, hence the resilience of housing starts and construction employment.
• It points to a structural scarcity of housing in a nation in which the supersized Millennial generation is in its peak homebuying age and (in 2023, at least) immigration rates were high.

The bottom line: "Homes being held off the market due to mortgage house-lock may be seen as a man-made scarcity," writes Feroli.

• "However, even if this scarcity were to be relieved—for example by a decline in mortgage rates that were to diminish the house-lock effect—there is still a physical scarcity that should also support homebuilding."