High interest rates crush the US housing market

Markets / July 12, 2022 / DRPhillF / 0

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Tuesday 12 July 2022

Today’s newsletter by Miles abroad, Senior Markets Editor at Yahoo Finance. Follow him on Twitter Tweet embed and on LinkedIn.

The growing interest is crushing the US housing market.

Most likely, readers will reply: “Tell me something I don’t know.”

But with the Federal Reserve still aggressive in its plans to raise interest rates aggressively in an effort to curb inflation, the US housing market is still ground zero where the most severe effects are being felt.

in Great Monday Twitter threadRick Palacios, Jr. , director of research at John Burns Real Estate Consulting, offered some of the highlights from the company’s latest survey of homebuilders.

Commentary ranges from anxiety to visionary. Things changed quickly.

A ‘Sold out’ sign is seen outside a recently purchased home in Washington, US, July 7, 2022. REUTERS/Sarah Selbiger

in Greenville, South Carolina, builder said: “Traffic slowed from the red hot. The feeling definitely looks different, but it’s more like a regular market.”

builder in Charlotte told the company: “This recession feels like a great five-year depression.”

From Palacios’ perspective, the June survey highlights three major housing issues at the moment:

More new home buyers are canceling.
Price cuts are widespread.
Lower demand is cooling the pressure of construction costs.

Data released late last month on new and existing home sales indicated a continuing slowdown in the US housing market, while survey data from Fannie Mae showed sentiment among potential homebuyers reached its lowest reading since 2014.

And although mortgage rates posted their biggest weekly decline since 2008 last week, the average rate on a 30-year fixed-rate mortgage is still at its highest level since 2009 at 5.3%.

Of course, some people hoping to buy homes may view the news of a slowdown in the market as a positive sign for their future prospects. Although we previously wrote in this area, the higher rates have dramatically changed the affordability equation for homes at the same price point.

Last month, Federal Reserve Chairman Jerome Powell described the housing market as undergoing a “reset” amid rising interest rates. Economists said at the time that the shift in housing was “a little more than that”.

Higher interest rates and a general slowdown in financial markets may dampen the current housing boom. Data from Eric Finnegan at Johns Burns Real Estate show up Demand for second home loans has fallen sharply this year after exploding in 2020 and 2021.

The end of this latest housing craze, however, likely won’t usher in a new era of increasing affordability. Inventory is rising, but it still stands Dejected – Depressed.

As the economist Ed Lemmer argued in his famous 2007 paper that housing is the business cycle, housing decline is expressed as a decrease in volume.

“For GDP and employment, size is what matters,” Lemmer wrote, later adding, “With lower sales volumes comes a similar drop in jobs in construction, finance and real estate brokerage.”

That is why this slowdown in the housing market has economists and policymakers worried that the slowdown could turn into something bigger.