The US housing market has now collapsed completely
For the first time since the Federal Reserve started raising interest rates, all aspects of the market for housing is poised to worsen.
The selling of resales has been declining since the beginning of 2022, as prospective sellers sit on their homes rather than give up the low rates of mortgage. The new homes offered relief to buyers. Now, no more. The recent increase in mortgage rates up to 8 percent has proved too much for builders of homes. They are likely to reduce construction in the coming months since profit margins are falling. Construction of apartments has also been rolling over in recent months as developers are hit with a combination of sluggish rent growth and high financing costs.
The discontent of potential buyers is well known. What are the macroeconomic implications? Given the importance of housing in the overall economy and the importance of residential construction, a slowing pace in construction will limit how fast the economy will grow, though not enough to cause recession in the next couple of 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.
The housing market is responding in a different way to the recent run-up in mortgage rates in comparison to 2022. Then, the strike by homeowners boosted the demand for newly constructed houses. The only bright spot on the market were the home builders. The lack of inventory held costs high, allowing businesses to make use of their profits to lower mortgage rates and make it more affordable for prospective buyers. This doesn’t seem to be the case any more. The process of reducing home loan rates to 5.5 per cent – the ideal rate for potential buyers – is a lot more straightforward at 7 percent than around 8 per cent. Builders’ confidence is going like their stocks and profit margins. The National Association of Home Builders/Wells Fargo gauge of sentiment dropped to its lowest since the beginning of January. We should expect builders to cut back on their production plans in the coming months.
In the beginning of the year, the first multi-family homes were steady, whereas units under construction grew as delays in supply chains delayed projects. Over the last two months, there’s been a noticeable decrease in the number of housing starts. The numbers for September were 31.5 percent lower than last year and the number of units under construction fell for two straight months. This suggests that we are likely past this cycle’s peak. The rental market is expected to be a drag on the economy until 2024 as less units are being constructed and less are being constructed.
From an investor’s perspective, this all matters in a period of high consumption and lofty expectations for third-quarter real gross domestic product growth have driven a stunning sell-off in Treasuries. JPMorgan Chase. JPMorgan Chase believes that the economy expanded at a a rate of over 4 percent during the quarter. Part of that boost is due to housing, which is expected to boost GDP for the first time since 2021’s early years because of the recent increase in single-family home starts. This trend is not likely to persist into the following quarter, or perhaps 2024, until interest rates decrease.
The restart of student loan repayments as well as the United Auto Workers’ strike and the union representing actors on radio and television are all possible factors to affect consumption.
This confluence may finally offer investors some relief from the flurry of hot economic data, which has been weighing on both bonds and stocks as it bolsters the prospects of further tightening of monetary policy. If this doesn’t turn out to be the case, it will suggest that the labour market and the consumer market have more momentum than appreciated – an uncomfortable scenario when the highest costs for borrowing since mid-2000 have caused a market to be shattered.