‘Clear sign of slowing housing market’: Homebuilder confidence drops for 6th consecutive month in June

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Numbers: U.S. homebuilder confidence fell for the sixth consecutive month, according to an industry index, reflecting pessimistic outlook given rising interest and mortgage rates.

Rising interest rates and rising inflation pushed the NAHB/Wells Fargo (HMI) U.S. housing market index down two points to 67, the National Association of Homebuilders (NAHB) said on Wednesday.

This drop was in line with the forecasts of economists polled by the Wall Street Journal.

A year ago, the index was 81. The June reading of 67 was the lowest since June 2020.

Key details: The three gauges that underpin the overall homebuilder confidence index also saw declines, including the gauge that measures current selling conditions, which fell one point, and the component that tracks traffic from potential buyers. , which fell five points, and the gauge that assesses sales. expectations for the next six months have dropped two points.

Regionally, the picture was grim across the board: Homebuilder confidence fell the most in the West by nine points, the Midwest by six points, followed by a two-point drop in the South and a point in the Northeast.

Big Picture: The housing market is in the midst of a general slowdown, amid rising mortgage rates. The average rate for a 30-year fixed-rate mortgage rose 25 basis points from 5.4% to 5.65% for the week ending June 10, according to the Mortgage Bankers Association. Rates are at “the highest level since 2008,” MBA’s Joel Kan said.

Mortgage rates should continue to rise as the Federal Reserve tightens monetary policy to control inflation.

Later on Wednesday, the US Federal Reserve raised the benchmark interest rate by 0.75 percentage points, the biggest increase since 1994 as it tries to rein in rising inflation from a peak 40 years old.

What NAHB said: “Six consecutive monthly declines for the HMI are a clear sign of a slowing housing market in a high-inflation, slow-growth economic environment,” said NAHB President Jerry Konter, a Savannah builder and developer. , in Georgia, in a press release.

“The entry-level market has been particularly hard hit by falling housing affordability and builders are taking a more cautious stance as demand falters with higher mortgage rates,” he added.

Market reaction: The yield of the 10-year Treasury note TMUBMUSD10Y,
3.242%
was lower at 3.4% on Wednesday. The 10-year hit a 52-week high on Tuesday. The SPDR S&P Homebuilders ETF XHB,
-6.61%
rose more than 1% in early trading Wednesday morning.

Shares of DR Horton, Inc. DHI,
-6.33%
and Lennar Corp LEN,
-6.50%
are both down 40% since the start of the year. PulteGroup Inc. PHM,
-8.01%
is down 30% since the start of the year; Toll Brothers Inc. TOL,
-6.31%
is down more than 38%.

What do they say? “We were expecting a bigger hit, but that’s not the bottom,” Ian Shepherdson, chief economist at Pantheon Macroeconomics, said in a note on Wednesday. “The demand for mortgages is plummeting and the NAHB index will drop much more over the summer.”

With mortgage applications also falling from December highs, Shepherdson said inventory levels and new home sales data all point to signs of further price declines and new construction activity. .

“We are only in the early stages of housing turnover; homebuilders are not yet ready to admit the sky is falling on them,” he said. “But he is.”

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