In his latest newsletter, NAHB Chief Economist Robert Dietz provided insights into the current state of the housing market and potential challenges on the horizon. While positive trends are observed, concerns about rising mortgage rates and inventory shortages persist.

The Federal Reserve's anticipated rate hikes in July and September are causing market expectations to adjust accordingly. As a result, the 10-year Treasury rate has risen above 3.9%, potentially leading to upward pressure on mortgage rates. Dietz notes that rates could approach 7% for a 30-year fixed home loan, highlighting the importance of monitoring these developments closely.

 

However, Dietz cautions against solely relying on backward-looking data and emphasizes the need for a comprehensive view. While shelter costs contribute significantly to inflation, measures such as rent growth show relatively flat growth rates, and an increase in the supply of apartments is expected. Additionally, commodity inflation has slowed considerably, suggesting a potential slowdown in overall inflation.

Despite potential challenges, recent data reflect positive signs in the housing market. The NAHB/Wells Fargo Housing Market Index, which measures single-family building sentiment, increased to a positive level of 55 in June, surpassing the breakeven level for the first time in 11 months. Single-family starts also saw an 18.5% increase in May compared to the previous month.


Furthermore, the demand for new construction remains strong due to limited existing home inventory. Newly built homes currently account for about one-third of the total housing market inventory, significantly higher than the historical average of 12%. Sales of newly built, single-family homes rose by 12.2% in May, reaching a seasonally adjusted annual rate of 763,000.

However, Dietz highlights the potential risk to the housing market's rebound momentum if mortgage rates sustainably exceed 7%. Monitoring interest rate developments will be crucial in understanding the market's future trajectory. Dietz explained, "Despite these positive readings for the building market, this rebound momentum is at risk if mortgage rates move north of 7% for a sustained period of time."

https://www.nahb.org/blog/2023/07/Fed-Driving-While-Only-Using-Rear-View-Mirror