The red-hot US housing market could be approaching an inflection point in coming months as home prices continue to soar in the face of rampant inflation. The National Association of Homebuilders (NAHB) housing market index recently fell to a six-month low. That decline was led by the six-month outlook for home sales plummeting to its lowest level since June 2020. Meanwhile, mortgage rates have jumped to a three-year high, which has analysts and economists rethinking their home sales forecasts for this year.
Despite the recent slowdown in housing data, there are some key indicators that show the market could remain near historic levels. Building permits are nearing a mark not seen since before the 2008 financial crisis and housing starts recently came in at a sixteen-year high. Still, the outlook for homebuilders in the second half of 2022 remains murky as consumers are more likely than ever to wait out rising mortgage rates and sky-high home prices.
Related ETFs: iShares U.S. Home Construction ETF (ITB), SPDR S&P Homebuilders ETF (XHB)
Home Sales and Builder Confidence Fall, Permits and Starts Still Elevated
The housing market may be approaching a peak as recent figures show a slowdown in home sales amid a slew of headwinds facing the industry.
Yesterday, the Commerce Department reported that sales of new single-family homes fell 2% month over month in February 2022, declining for the second straight month and came in 6% below February 2021 numbers. Economists polled by Reuters predicted that new home sales would rebound to 810,000 in February, from a downwardly revised January figure of 788,000 units.
The new home sales data comes on the heels of existing home sales, which plummeted 7% month over month in February 2022, the largest decrease in one year. Reuters notes that contracts to buy previously owned homes, a leading indicator of home sales, fell for three straight months through January.
Similarly, the National Association of Homebuilders (NAHB) Housing Market Index, a survey of homebuilder confidence and expectations, fell to 79 in March 2022, the third straight monthly decline and a six-month low. While the index recently hit an all-time high in December, and any reading above 50 indicates a majority of builders believe conditions are good rather than poor, factors that are weighing on homebuilder expectations do not look as if they will subside any time soon.
MarketWatch notes that the six-month outlook for home sales fell even more dramatically, dropping 10 points to 70 in March 2022, the lowest reading since June 2020.
Not all housing data has been disappointing for the industry, though. Building permits in the US…
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