As The “Housing Recession” Gets Worse, New Home Sales Drop In July

The once-vibrant housing market is declining alongside the overall economy.
The Census Bureau announced on Tuesday that new house sales decreased 12.6% in July after declining in May as the housing market continues to recover from the twin shocks of rising mortgage rates and rising prices.
The National Association of Home Builders recently stated that the decline to an annual rate of 511,000 from the revised June number of 585,000 confirms housing is now in a “recession,” putting the brakes on a sector of the economy that led the way during the coronavirus pandemic as people hunkered down. Its decrease will have an impact on the larger economy, boosting the possibility that a recession could occur in 2023 or later.
According to Kelly Mangold, a principal at RCLCO, “the combination of high prices and high mortgage rates have deterred some purchasers, and many are deciding to either continue renting or to stay in their present houses.”

Prior to the report’s release on Monday, LPL Financial Chief Economist Jeffrey Roach noted, “Forward-looking indications suggest that the housing slump has more to go.” Another significant housing indicator, the National Association of Home Builders (NAHB) index, dropped below 50 in August for the first time since May 2020. The volume of potential customers, a sign of upcoming sales, also decreased to its lowest level since May 2020.

At this pace, Roach continued, “home sales will probably continue to slow, and residential investment might end up being a drag on Q3 economic growth.” “We have probably not reached the bottom in the housing market,” says the Federal Reserve (Fed), “given the gap between Fed policy and the actual economy.”

“The housing market is in the process of a much-needed rebalancing as prices are leveling off, gradually transferring power back into the hands of purchasers who can afford to stick around,” added Nicole Bachaud, senior economist at Zillow.

However, she continued, “the market is still far from reaching a sweet spot, and depressing new building statistics illustrates how far there is still to go to create a true equilibrium.”

Due to increasing mortgage rates that have reached the 5% level after reaching record lows in the previous two years, the housing sector is one of the first to suffer the full impact of the Fed’s tightening of monetary policy.

In Jackson Hole, Wyoming, the Fed is convening its annual summer camp research confab, where the central bank’s chairman, Jerome Powell, is anticipated to provide clarification on the interest rate stance moving forward. The Fed does not meet again until September after hiking rates by 75 basis points in June and July. Analysts disagree on whether a rate increase of 50 or 75 basis points will take place at that time.

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The Dow Jones Industrial Average fell more than 600 points on Monday as a result of Wall Street’s anxiety over the future direction of monetary policy. In recent weeks, stocks have risen on expectations of slower inflation and better-than-expected earnings.

But as the summer comes to an end, traders have adopted a pessimistic outlook due to the prolonged and seemingly hopeless conflict in Ukraine, as well as the European economy’ struggles with runaway inflation, sluggish growth, and unstable energy markets.

According to Johan Grahn, head of ETF Strategy at AllianzIM, “Given the current environment, the Fed is left with no choice but to continue their path higher as it will fight inflation in the short term (at the expense of the growth of the economy) and serve up an opportunity to stimulate the economy if inflationary drivers unexpectedly pull back earlier (or the economy starts sinking)”. “When you’re in a leadership position, it helps to know where you’re heading. For the Fed, it should be obvious that raising interest rates is the only option right now.”

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