The US housing market has now completely broken

The first time in a while since the Federal Reserve started raising interest rates, each aspect of the housing market is likely to get worse.

The resale market has been slumping since early 2022 as potential sellers sit on their homes instead of giving up their low mortgage rates. The new houses offered some relief to buyers. There was no need to worry. The recent increase in mortgage rates as high as 8 percent has proved too much for home builders. With profit margins declining, they will most likely reduce their construction in the coming months. In recent months, apartment construction is also being halted because developers have been hit by a combination of slow growth in rent and high costs for financing.

Multi-family housing starts saw some stability at the beginning of the year, and construction units were increasing as delays in supply chain prevented projects from being completed. The past two months have seen a notable decline in the number of starts. In September, they fell by 31.5 per cent year over year and, importantly units under construction have fallen for two consecutive months, which suggests we’re past the peak for this cycle. The rental market is expected to be a drag on the economy into 2024, since fewer units are being built and less are being constructed.

Investors need to be aware of this, since the recent sell-off of Treasuries has been a surprise. This is due to a strong consumer market and expectation for real GDP growth in the third quarter. JPMorgan Chase. JPMorgan Chase estimates that the economy grew at more than 4 percent during the quarter.

Housing is a major contributor to the GDP growth, and is likely to be a major contributor for the first time since early 2021. This summer’s rise in single-family home starts is expected to help. This is unlikely to continue into the current quarter, and possibly through 2024 unless rates come off.

The restart of student loan repayments, the United Auto Workers’ strike and the union that represents radio and television actors are all possible factors to influence consumption.

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It’s easy to comprehend the frustration of potential homebuyers. What of the macroeconomic implications? Because of the significance of housing for overall economic activity and the importance of residential construction, a slowing pace in construction will slow the pace at which the economy will grow, though it is 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.

The housing market has responded in a different way to the recent rise in mortgage rates. The strike of home sellers has boosted the demand for newly built houses. Homebuilders became the one bright market. A lack of inventory kept prices high, which allowed companies to use their healthy profit margins to buy down mortgage rates, and increase affordability for potential buyers.

That no longer appears to be the situation. The process of reducing home loan rates to 5.5 percent – which is the magic level for would-be buyers – is simpler at 7 per cent than the 8 percent mark. The confidence among builders is heading the way of their profits and stock prices.

The National Association of Home Builders/Wells Fargo gauge of sentiment dropped to its lowest point since the beginning of January. Builders are likely to reduce their production plans in the future.

This convergence may offer investors some respite from the explosion of economic data which have put pressure on bonds and stocks, fueling prospects for further tightening monetary policy. If that is not the case, then it could indicate that consumers and the labor market are experiencing more energy than anticipated – which is a scary situation in which one market has already been broken by the most high borrowing rates since the mid-2000s.

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