US homebuilder morale wanes, services activity halted in the New York area

(Reuters) – U.S. homebuilders’ morale slumped in July to its lowest level since the early months of the coronavirus pandemic, as high inflation and steepest borrowing costs in more than a decade halted customer traffic.

Meanwhile, the gauge of activity in service sector activity in the Northeast US turned negative this month for the first time in a year, and companies see no improvement over the next six months.

The National Association of Home Builders/Wells Fargo Housing Market Index fell for the seventh consecutive month to 55, the lowest level since May 2020, from 67 in June, the NAHB said in a statement on Monday. Readings above 50 mean that more builders are viewing market conditions as favorable than bad.

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The July reading was below all 31 estimates in a Reuters poll of economists, which had expected an average drop to 65. Moreover, the 12-point drop was the second-largest drop in the series’ history dating back to 1985, and has not been surpassed by Only a 12-point drop. It dropped 42 points in April 2020 when most of the country was under the COVID-19 ban.

“Production bottlenecks, rising home building costs, and high inflation have put many builders on hold because the cost of land, construction and financing exceeds the market value of the home,” NAHB Chairman Jerry Counter, a home builder and developer from Savannah, Georgia, said in a statement. “In another sign of the market downturn, 13% of builders in the HMI survey reported reducing home prices in the past month to boost sales and/or reduce cancellations.”

The current sales component of single-family homes fell to 64 from 76. The gauge of single-family sales expectations for the next six months fell to 50 from 61, while the index of movement of potential buyers fell to 37 from 48.

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Starting rate of altitude to bite

The NAHB report is the first of a list of data due this week on the deteriorating health of the housing market that has rebounded through most of the pandemic. Americans looking for more living space, often outside of cities, pouring in cash from pandemic relief payments, big stock market gains, and access to record-low interest-rate mortgages thanks to the Federal Reserve’s interest rate cuts, has pushed the housing market into overdrive and rushes. . Home prices will increase from summer 2020.

Now, much of that is quickly reversing as the Federal Reserve, which is facing inflation at its highest pace in four decades, has begun to raise interest rates and is still far from that on that front. The US central bank has raised its benchmark interest rate by 1.50 percentage points this year from near zero and could raise it by two percentage points or more by the end of the year.

The Fed hopes that raising interest rates — and reducing nearly $9 trillion in US Treasury holdings and mortgage-backed securities — will cool hot consumer demand that, for a variety of reasons, outstrips the supply of goods and services and drives up inflation. .

The housing market is particularly sensitive to interest rates and stands out so far as the sector most clearly affected by the Fed’s policy change. Home borrowing costs have risen this year, with the contract rate on a 30-year flat-rate mortgage recently approaching 6%, the highest rate in 14 years, according to the Mortgage Bankers Association.

On Tuesday, the Commerce Department is expected to report that initial housing starts rose last month from the lowest pace in more than a year, although some economists see any improvement as short-lived.

“We are looking for housing to lose some momentum in the second half of 2022 as it starts averaging around 1.5 million in the fourth quarter, but the deterioration in building sentiment lends a downside risk to the outlook,” said Nancy Vanden Houten, chief US economist at Oxford Economics. . wrote in a note.

In addition to the weakness in the new home market recently seen in the NAHB and homebuilder data, existing home sales fell for four consecutive months through May, and data due on Wednesday from the National Association of Realtors is expected to show a continued decline. in June, with the pace of sales seen at the lowest level since June 2020.

Meanwhile, a survey by the New York Fed showed that activity in the service industry in its region – which covers New York state, northern New Jersey and southwestern Connecticut – fell in July for the first time in more than a year.

And while service employment growth remained positive and companies reported some early signs of easing inflation, industry executives reported their darkest six-month forecast since November 2020.

The report stated that “companies believe that activity will not increase over the next six months.”

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Dan Burns reports. Edited by Chizu Nomiyama and Paul Simao

Our Standards: Thomson Reuters Trust Principles.

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