The US housing market has now complete chaos

For the first time since the Federal Reserve started raising interest rates, all aspects of the housing market is now likely to get worse.

The housing market has reacted very differently in 2022 to the recent rise in mortgage rates. Then, the strike by home sellers boosted the demand for new homes. Homebuilders became the one bright market. Lack of inventory kept the costs high. This allowed businesses to profit from healthy profits for the mortgage rates of buyers. This doesn’t seem to be the situation anymore. It’s now easier to lower the cost of a home-loan to 5.5 percent – which is the minimum for potential buyers – at around 7% than around 8 percent. Confidence among builders is going in the direction of their stock prices and profit margins. In this month the National Association of Home Builders/WellsFargo sentiment gauge fell to its lowest level since January. We should expect builders to reduce their production plans moving forward.

Multi-family housing starts saw relatively stable conditions earlier in the year, and units under construction were rising as delays to supply chain processes kept projects from completion. Over the last two months, there’s been a noticeable decrease in the number of housing beginnings. The September numbers were 31.5 percent lower than the previous year and construction units fell for two straight months. This indicates that we’re likely to be over the peak of this cycle. The rental market will continue to drag the economy into 2024 as less units are being constructed and less under construction.

From the perspective of an investor the issue is at a time of robust consumption and lofty expectations for third quarter real GDP growth has led to a shocking selling off in Treasuries. JPMorgan Chase. JPMorgan Chase estimates that the economy grew at an average of more than 4 percent last quarter. Part of that boost comes from housing, which is expected to boost GDP in the first time since early 2021 because of the recent increase in single-family home begins. This is unlikely to continue into the current quarter, and possibly until 2024, unless interest rates come off.

The resumption in student loan repayments as well as the United Auto Workers’ strike and the union that represents radio and television actors are all possible factors to affect consumption.

Leedon Green Singapore

This convergence could finally give investors some respite from the run of hot economic data, which has been weighing on bonds and stocks as it bolsters the prospects of further tightening of monetary policy. If that is not the case, it could mean that the economy as well as the labour market are gaining more momentum than they anticipated, an extremely uncomfortable scenario when one of the markets has already been shattered by the most high borrowing rates since the mid 2000s.

Since the beginning of 2022 the resale market for housing has slowed as sellers resist to surrender their mortgage rates that are low. New houses had offered buyers some respite. However, they are no longer. Builders have been overwhelmed by the recent rise in mortgage rates that reached as high as 8%. Since profit margins are declining, they will most likely cut their construction spending in the months to come. Apartment construction has also rolled over in recent months as developers are afflicted by the slowing rent growth and high costs for financing.

It’s easy to understand the frustration of potential homeowners. What are the implications for macroeconomics? Due to the importance of housing to overall activity and the importance of residential construction, a slowing pace in construction will slow the pace at which the economy can grow but not enough to trigger recession in the next few quarters. To the extent that the brutal sell-off in Treasuries has been in response to hotter-than-hoped-for economic data, a paralysed housing sector will offer some respite.

error: Content is protected !!