We know the spring buying season barely got off the ground because of elevated mortgage rates, I said last week. Another reason was elevated prices, due to the housing shortage.
And builders aren’t keeping up with homebuyers’ demand for any residence, new or existing or rental housing.
Privately‐owned housing construction in June was at a seasonally adjusted annual rate of 1,434,000. This is 8.0 percent below the revised May estimate of 1,559,000 and is 8.1 percent below the June 2022 highpoint of 1,561,000. Single‐family construction is faltering in June (red line in below graph) at a rate of 935,000; this is 7.0 percent below the revised May figure of 1,005,000.
The real culprit for slowing starts and sales is sharply higher interest rates Conforming 30-year fixed mortgage rates averaged about 6.4 percent in April and May (for closed sales in June), according to Calculated Risk’s Bill McBride and 30-year rates increased to 6.7 percent in June (closed sales in July will be mostly for contracts signed in May and June).
There was no good reason for fixed rates to be rising at this time, as the inflation rate is about to fall off a cliff. Wholesale PPI inflation is 0.1 percent and retail inflation is 3.0 percent YoY in June, so why are traders worrying about higher inflation? Bonds are good predictors and a hedge against inflation, which means they should be falling in line with declining inflation.
Multi-family (apartment) construction is staying ahead of single-family construction (blue line in graph) because most home seekers must rent. There are too few homes being built in the affordable range.
That is why there are currently there are 994 thousand multi-family units under construction. This ties the record set in July 1973 of multi-family units being built for the baby-boom generation. For multi-family, construction delays are a significant factor. The completion of these units should help with rent pressure.
June existing-home sales were weak as well. Total existing-home sales[1] – year-over-year, were 18.9 percent down from 5.13 million in June 2022.
The wide swings in monthly sales and construction figures are largely due to wildly fluctuating interest rates, as I said. It stymies buyers and makes construction costs more uncertain, hence slows down housing starts.
That is why housing prices are also back up to last year’s high. At $410,200, the median existing-home sales price for June was the second-highest price ever recorded from one year ago of $413,800. It was the third time the monthly median sales price eclipsed $400,000, joining June 2022 and May 2022 ($408,600).
So it seems the financial markets aren’t yet reacting to the current inflation numbers. There are also some hardline inflation hawks who believe we are reliving the 1970s, when inflation rose into double digits.
That was a time of scarcities, particularly Middle East wars and an OPEC oil embargo. Those bottle necks also existed briefly with the pandemic and a Ukraine war. But today's data are telling us that’s having little or no effect on current inflation.
Fed Governors should have realized by now the harm any further rate increases will do to our rather desperate housing shortage; particularly for affordable housing.
Harlan Green © 2023
Follow Harlan Green on Twitter: https://twitter.com/HarlanGreen
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