VOL 2022 ISSUE 8

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VOL 2022 ISSUE 8



Housing Recession Deepens

Rising mortgage rates , high inflation , low existing inventory and elevated home prices caused housing affordability to fall to its lowest point since the Great Recession in the second quarter of 2022 . According to the NAHB / Wells Fargo Housing Opportunity Index , just 42.8 % of new and existing homes sold were affordable to a typical family . As more households are priced out of the for-sale market , a number of key housing metrics — including existing home sales , new home sales , single-family permits and single-family starts — have experienced significant year-over-year declines , characterizing the ongoing housing recession . Some markets are now seeing price declines as well .
The volume of new home sales in July fell to the lowest level since January 2016 . Sales of newly built , single-family homes came in at a 511,000 seasonally adjusted annual pace , which is a 12.6 % decline from the June rate and 29.6 % below the estimate from a year ago . Salesadjusted inventory levels are at an elevated 10.9- month supply in July . However , only 45,000 of the new home inventory is completed and ready to occupy . This count has been rising in recent months and is up 40.6 % compared to a year ago . New home sales are likely to continue to show weakness in the months ahead .
Total existing home sales , as estimated by the National Association of Realtors , fell 5.9 % to a seasonally adjusted annual rate of 4.81 million in July , the lowest level since May 2020 . On a yearover-year basis , sales were 20.2 % lower than a year ago . The July median sales price of all existing homes was $ 403,800 , up 10.8 % from a year ago , representing the 125th consecutive month of year-over-year increases — the longest-running streak on record . However , price growth is cooling quickly in most markets according to other reporting .
The softening of housing demand has led to ongoing declines for home builder sentiment , per the NAHB / Wells Fargo Housing Market Index ( HMI ). Builder confidence fell for the eighth straight month in August , falling six points to 49 and marking the first time since May 2020 the index fell below the key break-even measure of 50 . The August buyer traffic number in the builder survey was 32 , the lowest level since April 2014 , excluding the spring of 2020 when the pandemic first hit . Roughly one-in-five ( 19 %) home builders in the HMI survey reported reducing prices in the past month to increase sales or limit cancellations . The median price reduction was 5 % for those reporting using such incentives . The decline in the HMI is consistent with declines for single-family construction . Singlefamily starts decreased 10.1 % to a 916,000 seasonally adjusted annual rate and are down 2.1 % on a year-to-date basis . This is the lowest reading for single-family home building since June 2020 . More declines lie ahead , as singlefamily permits decreased 4.3 % to a 928,000 annual rate , and are down 5.9 % on a year-todate basis . NAHB is forecasting 2022 will be the first year since 2011 to record an annual decline in single-family home building .
The multifamily sector , which includes apartment buildings and condos , decreased 8.6 % to an annualized 530,000 pace . Multifamily construction remains very strong given solid demand for rental housing . The number of multifamily 5 + units currently under construction is up 24.8 % year-over-year . Multifamily development is being supported by a substitution effect , with frustrated or priced-out prospective home buyers seeking rental housing . Similarly , demand for single-family rental properties is rising , leading to gains for single-family built-forrent construction . There were approximately 21,000 single-family built-for-rent starts during the second quarter of 2022 . This is a 91 % gain over the second quarter 2021 total .
The outlook for the housing market is now dependent on incoming inflation data and the Federal Reserve ’ s monetary policy . It appears , for example , that the core Personal Consumption Expenditures price index measure of inflation has peaked . And some economists are forecasting the Fed will decelerate its rate hikes , with perhaps a 50 basis-point hike in September , following the 75 basis-point hikes in both June and July . Nonetheless , the Fed will continue hiking , with the bond market pricing in the 10- year Treasury above 3.1 % for the first time since late June .