International Property

US homebuilders’ confidence drops most in four years as rates rise

  • Though the National Association of Home Builders/Wells Fargo Housing Market Index remains in positive territory, policy makers are urged to use it as a gauge for the broader economy
PUBLISHED : Tuesday, 20 November, 2018, 3:49pm
UPDATED : Tuesday, 20 November, 2018, 7:22pm

Confidence among US homebuilders plummeted by the most since 2014 as the highest borrowing costs in eight years restrain demand, adding to signs of a cooling housing market that will weigh on the Federal Reserve’s debate over how far to raise interest rates.

The National Association of Home Builders/Wells Fargo Housing Market Index dropped eight points in November to 60, the lowest level since August 2016, according to a report on Monday. That compared with the median estimate of economists for a one-point drop to 67.

While the index remains in positive territory, the group called on policy makers to take note of the housing situation as a possible warning sign about the broader economy.

A housing slowdown may have implications for how far the central bank will extend its run of eight interest-rate hikes since late 2015. The Fed is expected to raise interest rates in December and will also update projections that in September showed a median outlook of three quarter-point hikes next year.

“Rising mortgage interest rates in recent months coupled with the cumulative run-up in pricing has caused housing demand to stall,” NAHB chief economist Robert Dietz said in a statement accompanying the data. “Given that housing leads the economy, policy makers need to focus more on residential market conditions.”

The NAHB sub-index measuring current sales fell seven points to 67, the lowest since August 2016, while the index for the six-month outlook for transactions dropped 10 points to 65, the lowest since May 2016. A measure of prospective buyer traffic declined eight points to 45, also the lowest since August 2016.

Given that housing leads the economy, policy makers need to focus more on residential market conditions
Robert Dietz, NAHB

The buyer-interest gauge was “pretty weak” and may be even more concerning if it stayed below 50 for a few months, said Blerina Uruci, an economist at Barclays Plc.

“The housing market continues to be in the recovery phase, but I see it as losing momentum now, as that recovery softens, as we get late in the business cycle,” Uruci said.

US home sales in September fall for sixth straight month to slowest pace in three years

Other reports this week are expected to show a more stable housing-market picture, with starts and existing-home sales both projected to rise slightly in October, despite the headwinds. The Mortgage Bankers Association said last week the average rate on a 30-year fixed mortgage rose to 5.17 per cent, the highest since April 2010.

The stalling in the housing market will be a part of the Fed’s debate at its meeting December 18-19, where investors expect the central bank to raise the nation’s benchmark short-term interest rate for the fourth time this year. The Fed and private economists generally expect growth to cool from its strong pace in the second and third quarters of 2018; some analysts see the possibility of a recession in 2020 as the effects of fiscal stimulus fade.