US Enters ‘Housing Recession’ As Sentiment Dives

The US is in a “housing recession.”

That’s according to NAHB Chief Economist Robert Dietz, who delivered a sobering assessment Monday, in color accompanying the latest read on builder sentiment, which is poor.

At 49, the gauge dropped below the key break-even measure of 50, and missed even the most pessimistic estimate from more than two-dozen economists. It was the lowest reading since May of 2020 and marked the eighth consecutive monthly decline (figure below).

Dietz cited mortgage rates and cost pressure. “Tighter monetary policy from the Federal Reserve and persistently elevated construction costs have brought on a housing recession,” he declared.

Mortgage rates are well off this year’s highs, but still up dramatically from rock-bottom levels reached in the aftermath of the pandemic, when the Fed helped inflate an epic housing bubble, an effort which ultimately backfired. Record high home prices fed into shelter inflation on a lag, while the wealth effect from the property bonanza contributed to voracious demand in a supply-constrained economy.

The NAHB’s measure of future single-family sales dropped again, to 47. It was the fourth consecutive monthly decline (figure below).

Outside of the pandemic, the last comparable read on the single-family, next six months gauge was in 2012. For context, it reached 15 in early 2009.

“Ongoing growth in construction costs and high mortgage rates continue to weaken market sentiment for single-family home builders,” NAHB Chairman Jerry Konter said Monday, on the way to describing a “troubling” read on real-time activity. A gauge of buyer traffic dropped to 32 this month, the lowest in more than eight years excluding the pandemic.

“Consumers are now sitting on the sidelines due to higher housing costs,” Konter remarked. Dietz said single-family starts will log their first decline since 2011 this year.

Data on housing starts for July is due Tuesday. Markets will get an update on existing home sales later this week.