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Today's newsletter is by Myles Udland, senior markets editor at Yahoo Finance. Follow him on Twitter @MylesUdland and on LinkedIn.
The Federal Reserve is trying to slow the economy, and the housing sector is bearing the full force of these actions right now.
Costs are rising for buyers. Confidence from builders is falling. List prices are getting cut. And if the idea that the housing cycle is the business cycle holds any sway, the road ahead does not look pretty.
The Census Bureau published its latest report on housing starts and building permits, which offers a monthly look at home construction activity nationwide, on Thursday morning. It showed that in May, the pace of new home construction fell by 14% from April to its lowest level in a year.
In the mortgage market, things are even more challenging.
Data out Thursday from Freddie Mac showed the average rate on a 30-year fixed mortgage rose to 5.78% last week, the highest since November 2008 and marking the largest one-week increase since 1987.
In a press conference on Wednesday, Fed Chair Jerome Powell said the housing market is experiencing a "reset." The data published Thursday suggests to at least one economist that "reset" might not be a strong enough word to describe the dynamics taking place in the housing market right now.
"The next few months will bring further, steep, declines in housing construction, given the collapse in mortgage demand," Ian Shepherdson, chief economist at Pantheon Macro, wrote in a note following Thursday's housing starts data. "Chair Powell yesterday said the housing market is undergoing a 'reset'; it’s much more than that."
Earlier this week, the latest reading on homebuilder sentiment from the National Association of Home Builders showed builder confidence in June fell to its lowest level in two years. And a new report from Redfin (RDFN) showed that amid rising interest rates, the share of homes for sale with recent price drops rose to the highest level since at least 2015.
Taylor Marr, deputy chief economist at Redfin, stated that the housing market "isn’t crashing, but it is experiencing a hangover as it comes down from an unsustainable high. Housing demand has already cooled significantly to the point that the industry has begun facing layoffs."
Redfin laid off 8% of its staff earlier this week, the latest in a string of layoffs we've seen announced across the tech world that appears to be broadening out.
"I would say if you're a home buyer... or a young person looking to buy a home, you need a bit of a reset," Powell said Wednesday. "We need to get back to a place where supply and demand are back together, where inflation is down low again, and mortgage rates are low again. So this will be a process whereby we ideally... do our work in a way that the housing market settles in a new place and housing availability and credit availability are at appropriate levels."
Translation: The current state of housing is not healthy.
And the Fed's suggested cure? Sweat it out.
Industrial Production, month-over-month, May (0.4% expected, 1.1% during prior month)
Capacity Utilization, May (79.3% expected, 79.0% during prior month)
Manufacturing (SIC) Production, May (0.2% expected, 0.8% during prior month)
Leading Index, May (-0.4% expected -0.3% during prior month)
No notable reports set for release.
No notable reports set for release.
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