heyit is Accommodation The indicators signal a particularly bad one for the economy.
Confidence of homebuilders, which anticipate market conditions in the single-family construction space, has fallen over the past few months as the housing market is taking a beating and is now facing bearish conditions.
“The Federal Reserve’s tight monetary policy and persistently high construction costs have triggered a housing slowdown,” said Robert Dietz, chief economist of the National Association of Homebuilders. “The total amount of single family starts will decline in 2022, the first such decrease since 2011.”
inflation The economy has pushed up 8.3% as measured by the latest readings of the Consumer Price Index. Too much inflation has triggered a chain reaction, beginning with an increase in interest rates by the Federal Reserve, now filtered through higher mortgage rates for residential construction.
The construction industry is a good gauge of the overall health of the economy and can be an early indicator of a recession because of how many jobs it supports and how many materials are used in the construction process. Adam Graham is a construction industry analyst at Fixer, a company that specializes in home improvement and remodeling resources. He Logic Homebuilder confidence is an important metric of the health of various market segments.
NAHB announced last month that home builders had lost their confidence for eight consecutive months. The NAHB/Wells Fargo Housing Market Index found builder confidence in the market for newly constructed single-family homes fell 6 percentage points this month into negative territory for the first time since a brief period at the start of the pandemic.
Nearly 1 in 5 of the homebuilders surveyed reported slashing prices in the past month to limit cancellations or increase sales, while nearly 70% attributed the drop in housing demand to rising interest rates.
“It’s a very clear signal from people who make their money building homes or we’re about to enter a housing recession,” Graham said.
That dwindling homebuilder’s confidence is coming from rising mortgage rates. When the Fed raises its interest rate target (which is a different, very short-term rate), mortgage rates increase as well. Mortgage rates have risen more than 6% this week for the first time since the Great Recession.
According to Freddie Mac, the average 30-year fixed-rate mortgage is now 6.02%, up from 3.1 percent a year ago. This is a jump of 0.13 points in the last one week alone.
The Fed has raised rates by 75 basis points twice so far this year. The first increase marked the most aggressive growth since 1994, and it is expected that another jumbo rate hike will follow next week’s Federal Open Market Committee meeting, with some investors even betting that the central The bank would go a step further and crank up the rates. 100 basis points above.
When mortgage rates rise, housing becomes less affordable and demand for homes falls. Thus, the demand for manufacturing also decreases.
Housing Start measures the annual change in the number of new residential buildings starting construction. Last month, they fell a whopping 9.6% to 1.45 million at an annualized rate after a modest gain in June, according to a Tuesday report from the Commerce Department.
Additionally, permits for construction, which is seen as a proxy for future construction, decreased by 1.3% in July, adding further tension to the housing market.
Chris Rupkey, chief economist at FWDBONDS, said, “Net, net, housing permits are shrinking every month since the first Fed rate hike in March this year because homemakers know what and how the winds are blowing.” ”
“The slowdown in the residential construction markets has come at the right time as interest rate sensitive housing is the first sector to close, when rising mortgage rates make it more expensive for home buyers,” he said.
After 2021 marked an explosive year for the housing market due to ultra-low mortgage rates, sales of both existing and new homes have started to decline in another sign of the slowdown.
Desmond Lachman, a senior fellow at the American Enterprise Institute, has been warning for months that the housing market is in a bubble. They told Washington Examiner What economists and homeowners are seeing right now is the bubble bursting.
According to a report by the National Association of Realtors, sales of existing homes fell 5.9% in July, the lowest for six months in a row. Sales are down 20.2% from a year ago and have accelerated as the year went on and the Fed raised rates.
Additionally, new home sales fell to their lowest level since January 2016. They fell 12.6% in July to a seasonally adjusted annual rate of 511,000, according to a Census Bureau report.
Lachman said the slump in the housing market reflects a slowdown as its impact has spread to all parts of the macroeconomic landscape.
“The housing market is slow, and as it slows, it spreads to the rest of the economy,” Lachman said. “Builders will get laid off, then they won’t go to restaurants, they won’t buy stuff, etc.”
Reports on new and existing home sales, as well as homebuilder confidence, will be closely examined in the coming weeks as to whether the housing and construction slowdown is accelerating or slowing.