August 15 2024

This series declined 2 points in August to 39 after falling 2 points in June.  In fact, this is the fourth consecutive decline in this series. Keep in mind that the breakeven point for this series is 50.  At 39 it is clear that builders are being cautious  They are bothered by mortgage rates that even at 6.5% are still relatively high.  They are also bothered by the inability to hire as many workers as they would like, by the relative scarcity of lots on which to build, and onerous local regulations.

NAHB Chairman Carl Harris, a custom home builder from Wichita, Kansas said, “Challenging housing affordability conditions remain the top concern for prospective home buyers in the current reading of the HMI, as both present sales and traffic readings showed weakness.  The only sustainable way to effectively tame high housing costs is to implement policies that allow builders to construct more attainable, affordable housing.”

Chief Economist Robert Dietz said, “With current inflation data pointing to interest rate cuts from the Federal Reserve and mortgage rates down markedly in the second week of August, buyer interest and builder sentiment should improve in the months ahead,”

Traffic through the model homes fell 2 points in August to 25 after declining 1 point in July.  Traffic through model homes remains very low as still high mortgage rates are reducing the number of interested buyers.

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The homebuilders expectations index rose 1 point in August to 49 after climbing 1 point in July.  Mortgage rates expected to fall slightly between now and yearend which should bolster the  housing market.

Mortgage rates were now hovering at the 6.8% mark which is relatively expensive.  They recently declined to 6.5% and both potential home buyers and builders expect them to decline as the year progresses given the continuing slowdown in inflation and likely rate reductions by the Federal Reserve.

Home prices rose sharply for almost two years from mid-2020 through the spring of last year.  They then fell for eight consecutive months.  An acute shortage of homes available for sale has caused prices to climb again in recent months  Builders lack of enthusiasm is likely to translate into only a small increase in housing starts between now and the end of the year.

If home prices are relatively steady, the economy continues to crank out jobs and wages rise, and mortgage rates gradually decline to the 5.8% mark, housing affordability should increase somewhat as the year progresses.

We expect GDP growth to slip to 0.9% in the third quarter and 1.6% in the fourth quarter.  But that result is partially attributable to the change in inventories.  Final sales growth, which excludes the change in business inventories is expected to be 2.2% and 1.7% in the final two quarters of the year.

Stephen Slifer

NumberNomics

Charleston, SC