Residential: Boom or bust? What ‘lukewarm’ builder sentiment means for the future of the housing market

Recent indicators reflect the current slowdown in the housing market, despite an overall healthy economy. “Both the volume and the momentum in new home sales and existing home sales are struggling,” said Tim Rood, chairman of The Collingwood Group, a Situs company.

“Builder sentiment is lukewarm,” he said during an interview on FOX Business News with Connell McShane. With rising interest rates and tepid expectations among housing industry stakeholders, Rood said the housing market is reaching “a breaking point where borrowers can’t justify the spend.”

During the FOX interview, Rood surveyed the state of housing market and what current indicators forecast for the coming year. “Permits and starts are a leading indicator and look very soft,” he said.

Homebuilder confidence has also hit a two-year low, according to the National Association of Home Builders(NAHB)/Wells Fargo Housing Market Index (HMI), as illustrated in the graphic below.

NAHB Chief Economist Robert Dietz said, “While home price growth accommodated increasing construction costs … rising mortgage interest rates in recent months coupled with the cumulative run-up in pricing has caused housing demand to stand still.”

Many millennials are expected to start new households and enter the housing market in the next two to six years.

“That’s going to be great for demand,” Rood said. However, today, many younger and first-time homebuyers remain on the sidelines. With respect to these homebuyers, realtors relay a sense of feeling “burnt out” and “fatigued,” Rood said.

In the near term, Rood said he was “encouraged on interest rates.” Although the Federal Reserve is widely expected to raise rates in December, Rood said it appears Chair Jerome Powell “is hitting the pause button,” in anticipation of changing business conditions in 2019.

“Is there anything abnormal about what is happening now?” McShane asked Rood.

“Some of the common proxies you would use for a healthy housing market aren’t bearing out,” Rood said, including a robust labor market, strong consumer confidence and rising wages and incomes. Instead, geopolitical issues appear to be contributing to consumer anxiety, including tariffs and “stock market jitters,” he said. As the geopolitical landscape stabilizes and interest rate hikes slow in the year ahead, the housing market is likely to settle into a new normal.


Click here to subscribe to Situs Newswatch.

Thank you for choosing the Situs Newswatch. If you want to see your company here or have an idea for coverage, please respond to this email or email inquiries@situs.com for more information.

Disclaimers:

General. This disclaimer applies to this publication and the verbal or written comments of any person presenting it. In this publication Situs Group LLC taken together with its affiliates are collectively referred to as “Situs”.

Forward Looking Statements. Forward looking statements (including estimates, opinions or expectations about any future event) contained in this publication are based on a variety of estimates and assumptions. There can be no assurance that any such estimates and/or assumptions will prove accurate, and actual results may differ materially.

No advice. Situs advises that no statement in this publication is to be construed as advice of any kind, including, without limitation, as a recommendation to make any investment or to buy or sell any security or as investment advice. The examples contained in this publication are intended for use as background on the real estate industry as a whole, not as support for any particular real estate investment or security.

Information. Certain information contained in this publication includes articles, data, calculations and/or figures that have been prepared by and obtained from others, including publically available sources. Such information has not been audited or verified by Situs. This publication does not purport to be complete on any topic addressed. This publication may contain the subjective views of certain Situs employees and may not necessarily reflect the collective view of Situs or certain Situs business units.

Logos, trade names, trademarks and copyrights. Certain logos, trade names, trademarks and copyrights included in this publication are strictly for identification and informational purposes only. Such logos, trade names, trademarks and copyrights may be owned by companies or persons not affiliated with Situs. Situs makes no claim that any such company or person has sponsored or endorsed the use of any such logo, trade name, trademark and/or copyright.