US homebuilder sentiment plunges, New York-area service activity stalls

July 18 (Reuters) – U.S. homebuilder sentiment fell in July to its lowest level since the early months of the coronavirus pandemic, as high inflation and the highest borrowing costs for more than a decade have virtually crippled customer traffic.

Meanwhile, an indicator for service sector activity in the northeastern United States turned negative this month for the first time in a year, and businesses see no improvement over the of the next six months.

The National Association of Home Builders/Wells Fargo housing market index fell for the seventh consecutive month to 55, the lowest level since May 2020, from 67 in June, the NAHB said in a statement Monday. Readings above 50 mean more builders view market conditions as good than bad.

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The July reading was lower than the 31 estimate from a Reuters poll of economists, which predicted a median drop to 65. In addition, the 12-point drop was the second largest in the series’ history dating back to 1985. , surpassed only by the 42-point drop in April 2020 when most of the country was under COVID-19 lockdown.

“Production bottlenecks, rising home construction costs and high inflation are causing many builders to halt construction as the cost of land, construction and financing exceeds the market value of the home” , said NAHB President Jerry Konter, a builder and real estate developer from Savannah, Georgia. , said in a statement. “In another sign of a slowing market, 13% of builders in the HMI survey said they had cut home prices in the past month to support sales and/or limit cancellations.

The current single family home sales component rose from 76 to 64. The single family sales expectation gauge for the next six months fell to 50 from 61, while the potential buyer traffic index fell to 37 from 48 .

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The NAHB report is the first in a series of data due this week on the faltering health of a housing market that had boomed for much of the pandemic. Americans looking for more living space, often outside cities, and brimming with money from pandemic relief payments, big stock market gains and access to mortgages sporting interest rates Record interest from Federal Reserve rate cuts had sent the housing market into overdrive and house prices soared from the summer of 2020.

Now, much of that is rapidly reversing as the Fed, facing inflation at its highest pace in four decades, has begun raising rates and is far from done on that front. The U.S. central bank has raised its benchmark overnight interest rate by 1.50 percentage points this year from near zero and could raise it by another 2 percentage points or more by the end of the year. end of the year.

The Fed is hoping its rate hikes — and a cut to its nearly $9 trillion in U.S. Treasury and mortgage-backed securities — will calm strong consumer demand which, for various reasons, is outpacing the Fed. supply of goods and services and drives up inflation. .

The housing market is particularly sensitive to interest rates and so far stands out as the sector most visibly affected by the Fed’s policy shift. Home borrowing costs have jumped this year, with the contract rate for a 30-year fixed-rate mortgage recently approaching 6%, the highest in 14 years, according to the Mortgage Bankers Association.

On Tuesday, the Commerce Department is expected to report that housing starts rose slightly last month from the lowest pace in more than a year, although some economists see any improvement as short-lived.

“We expect housing starts to lose momentum in the second half of 2022 with housing starts averaging around 1.5 million in the fourth quarter, but deteriorating builder sentiment poses downside risk to forecast,” said Nancy Vanden Houten, chief U.S. economist at Oxford Economics. , written in a note.

In addition to new home market weakness recently highlighted in NAHB and housing starts data, existing home sales fell for four straight months through May and data due Wednesday from the National Association of Realtors should show that the decline has continued. in June, with the lowest sales rate since June 2020.

Meanwhile, a Federal Reserve Bank of New York survey showed service sector activity in its region – covering New York state, northern New Jersey and southwestern Connecticut – fell in July for the first time in more than a year.

And while employment growth in services remained positive and companies signaled early signs of easing high inflation, sector executives announced the gloomiest six-month outlook since November 2020. .

“Companies believe that activity will not increase over the next six months,” the report said.

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Reporting by Dan Burns; Editing by Chizu Nomiyama and Paul Simao

Our standards: The Thomson Reuters Trust Principles.

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