The housing market took center stage this week. The week began with an eye-catching plunge in home builder sentiment. July's NAHB Housing Market Index dropped 12 points to 55, the second largest monthly decline on record behind April 2020's pandemic-induced collapse. There was not a bright spot to be found in the underlying details, with measures of buyer traffic and single-family sales, both present and future, posting substantial declines. For most of the past two years, home builders have been navigating a rising cost environment, namely for building materials, labor and land. However, the straw that breaks the back of builder sentiment now appears to be higher financing costs. According to Freddie Mac, the average 30-year mortgage was 5.54% during the week ended July 21, a jump from the 3.22% averaged during the first week of 2022.
The downturn in home builder confidence provided an early clue that June's data for new home production would surprise to the downside. Total housing starts declined 2.0% to a 1.559 million-unit pace during June, below consensus estimates for a modest increase following May's sharp contraction. Single-family starts dropped 8.1%, the fourth consecutive monthly decline. Single-family starts are now running at a 982,000-unit pace, which is a bit higher than the sluggish pace registered for much of the decade predating the pandemic, but still the slowest since June 2020. The sharp rise in borrowing costs is clearly leading home builders to scale back production plans, with single-family permits recently taking a downward trajectory. Single-family permits dropped 8% in June, the fourth consecutive drop.
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