Housing Upside but Concern
In a nice surprise to the upside, the Census Bureau housing report indicated that housing starts jumped a larger-than-expected 12.2% to a 1.575-million-unit pace, leaving starts off only 0.1% Y/Y. Both single-family and multi-family segments gained. Starts peaked in April at a 1.805-million-unit pace. With the rebound in mortgage interest rates, we may see housing starts reverse direction again in September. The more forward-looking building permits, however, continued to decline, falling by 10.0%, to a 1.517-million-unit pace. The weakness was both segments, leaving total building permits off 14.4% Y/Y. The single-family segment is more sensitive to higher interest rates and housing costs, and the August weakness reflects eroding affordability. There are several measures in the report that reflect an easing of the labor and material shortages that homebuilders are facing. The number of housing units authorized but not started fell and housing units under construction rose. Housing completions, however, declined.
Yesterday, the National Association of Home Builders (NAHB) reported that homebuilder confidence (as measured by the NAHB Housing Market Index) dropped three points to 46 in September, a more negative reading. This marked the ninth consecutive decline and is the lowest level since May 2014. Confidence was hurt by elevated interest rates, persistent building material supply chain disruptions, and high home prices that continue to take a toll on affordability. The gauge for the traffic of prospective buyers fell further into negative territory.
The National Association of Realtors (NAR) housing-affordability index, which factors in family incomes, mortgage rates and the sales price for existing single-family homes, is near its lowest level since 1989. That is, it is more expensive to buy a U.S. home that it has been in more than three decades.
Freddie Mac reported that the average rate on a 30-year fixed mortgage rate climbed to over 6.0% recently, the highest level since 2008. As a result, more borrowers are choosing adjustable-rate loans to make lower payments now with the hope of refinancing later. This will create risk down the road.