Is Housing the Next Shoe to Drop for the Economy? Homebuilder Confidence Plunges in July | Economy

Homebuilder confidence fell 12 points in July in the worst decline since the early days of the coronavirus, the National Association of Homebuilders said Monday.

The agency’s monthly index fell to 55 from 67 in June and is now at its lowest level since May 2020.

“Constraints in production, rising costs of construction and rising prices are causing many builders to put off construction because the cost of land, construction and capital exceeds the market value of the home,” said association President Jerry Konter, a home builder and developer. in Savannah. Georgia. “In another sign of a soft market, 13% of builders in the HMI survey reported that they have reduced home prices in the past month to encourage sales and/or reduce foreclosures.”

The agency’s chief economist, Robert Dietz, said affordability remains a key issue for potential buyers.

“Buying is the biggest challenge facing the housing market,” Dietz said. “Large segments of the housing market are sold on the market. Policymakers need to address the issue of helping developers build affordable housing.”

All three equipment shipments fell for the month, with sales falling 12 to 64, futures expectations falling 11 to 50 points and the number of prospective buyers also falling 11 to 37.

No sector in the US economy has fared better than housing in the past two years as the coronavirus has disrupted many sectors from automotive to hospitality.

The median price of a single-family home has jumped 30% since the pandemic began, or $100,000. At the end of 2020 it changed to +2.68%. Construction employment rose from 6.5 million in April 2020 to 7.7 million last month.

But everything is changing. Although prices rose 20.4% year-on-year in April, the most recent month for which data is available, it was down slightly from 20.6% in March. Interest rates, meanwhile, have risen to around 6%, although there has been a slight decline of late.

Along with having a job, owning a home is a measure of financial health for many people. Over time, owning a home has provided a solid foundation for middle life.

The epidemic hastened all this. Trapped in the middle of the pandemic, many Americans have expanded their existing homes, upgraded their homes, or used their growing savings to invest in something bigger and better. Remote work forced homeowners to move, prompting them to purchase larger properties. Sun Belt areas such as Phoenix and Tampa, Florida, became hot spots while the big cities of New York and San Francisco saw their appeal fade.

That is now changing, and exactly how the housing shortage will affect the economy as a whole will become clearer this week as the economy awaits reports on home sales, prices, new housing starts and building permits. There may be a temporary bump in some properties as the number of homes sold brings the supply/demand balance to the same level.

Behind housing, as in the rest of the economy, is the Federal Reserve’s current policy of raising interest rates to combat inflation. As prices have risen, this has made buying a home more expensive. The threat of rising unemployment and recession is also looming as a threat to the economy. Consumer sentiment, meanwhile, is down 32% from a year ago.

On Tuesday, the economy will look at housing starts and permits in June, expecting a slight annual increase to 1.58 million from 1.55 million in May, and a slight decline in permits to 1.65 million from 1.7 million in the previous month.

Wednesday brings the June home sales report, with a consensus forecast of 5.37 million for the year, down from 5.41 million in May.

All in all, the reports should show the housing market cooling from 2021, but it has not yet stopped.

“In short, the housing market has been operating in a difficult environment for the first few years of the year,” said Sam Bullard, senior managing director and chief economist for the Wells Fargo Corporate & Investment Banking group.

“Homebuilder confidence has been in free fall since January, reflecting rising interest rates,” Bullard added. “In contrast, we are looking for housing starts to slow down in June following the massive 14.4% decline recorded in May. Building permits have fallen for two months in a row, but we still expect some improvement to start with May’s decline.”

“As the Fed continues to raise interest rates in the coming months to combat rising inflation, headwinds to the housing market will continue which should keep housing activity weak for the foreseeable future,” Bullard said.