July 16, 2024

Homebuilder confidence fell 1 point in July to 42 after declining 2 points in June to 45 and falling 6 points in May.  .This series began to climb when mortgage rates declined late last year, but it has retreated as mortgage rates climbed in the first few months of this year.  .  Keep in mind that the breakeven point for this series is 50.  At 42 it is clear that builders are being cautious  They are bothered by mortgage rates that are hovering just under the 7.0% mark.  They are also bothered by the inability to hire as many workers as they would like, and by 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, “While buyers appear to be waiting for lower interest rates, the six-month sales expectation for builders moved higher, indicating that builders expect mortgage rates to edge lower later this year as inflation data are showing signs of easing.”

Chief Economist Robert Dietz said, “Though inflation is still above the Federal Reserve’s target of 2%, it appears to be back on a cooling trend. NAHB is forecasting Fed rate reductions to begin at the end of this year, and this action will lower interest rates for home buyers, builders and developers.  And while home inventory is increasing, total market inventory remains lean at a 4.4 months’ supply, indicating a long-run need for more home construction.”

Traffic through the model homes fell 1 point in July to 27 after declining 2 points in June to 28 and slipping 4 points in May.  Traffic through model homes remains very low as 6.9% mortgage rates are reducing the number of interested buyers.

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The homebuilders expectations index rose 1 point to 48 after having dropped 4 points in June to 47 after plunging 9 points in May.  Mortgage rates are now expected to fall slightly between now and yearend.

Mortgage rates that are now hovering at the 6.9% mark which is relatively expensive, but both potential home buyers and builders expect them to decline as the year progresses given the continuing slowdown in inflation.

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 6.6% mark, housing affordability should increase somewhat as the year progresses.

We expect GDP to increase 1.9% in the second quarter as firms keep hiring new workers at a steady pace, wages keep climbing, and  the unemployment rate remains just above the full-employment threshold at 4.1%.  We expect GDP growth to slip to 1.7% in the second  half of this year as consumer spending slows and the housing market improves only slightly.

Stephen Slifer

NumberNomics

Charleston, SC