U.S. Housing Market: Home Sales Tumble, Builders Become Pessimistic

The U.S. Housing Market Is Emerging as a Clear Victim of Higher Interest Rates

As rates are going higher, we are seeing the U.S. housing data turn gruesome.

iStock.com/higyou

Consider that in July, sales of already-built homes (existing homes) declined 0.7% from a month earlier. Year-over-year, sales are down 1.5%.

Here’s the thing, this is not a one-off event. On a year-over-year basis, July marked the fifth consecutive month of decline in existing home sales.

Saying the very least, there’s a clear trend here.

Lawrence Yun, the chief economist at the National Association of Realtors, said something very interesting about what’s happening in the U.S. housing market: “Too many would-be buyers are either being priced out, or are deciding to postpone their search until more homes in their price range come onto the market.” (Source: “Existing-Home Sales Slip 0.7 Percent in July,” National Association of Realtors, August 22, 2018.)

New Home Sales Growth Rate Drops & Home Builders Turn Pessimistic

If you’re not convinced that higher rates are impacting the U.S. housing market, look at another chart below.

This chart plots the annual rate of new home sales in the U.S. economy.

(Click on image to enlarge)

(Source: “New One Family Houses Sold: United States,” Federal Reserve Bank of St. Louis, last accessed August 22, 2018.)

The annual rate of new home sales in the U.S. continues to decline. In November 2017, it stood at 712,000. In June, it was the lowest since October 2017 at 631,000. This is a deceleration of over 11%.

Those very close to the U.S. housing market, the home builders, are becoming pessimistic, too.

Look at the National Association of Home Builders’ Housing Market Index (HMI). At its core, it shows us the sentiment of home builders in the U.S.

In August, the HMI stood at the lowest level since September 2017. (Source: “Housing Market Index,” National Association of Home Builders, last accessed August 22, 2018.)

Why Bother with What Happens in the U.S. Housing Market?

Dear reader, don’t forget that the U.S. housing market impacts the U.S. economy. If higher interest rates lead to dismal housing market conditions—be it lower prices and lower sales—it’s going to impact consumption, homeowners, and jobs in several industries.

For investors, know that poor housing market conditions could mean trouble for home-builder stocks.

Things haven’t really turned dire in the housing market, but we are already seeing the selling of home-builder stocks. Look at the stock chart below of Toll Brothers, Inc. (NYSE:TOL)—a well-known home construction company with a presence across the U.S.

Chart courtesy of StockCharts.com

Year-to-date, the stock price has declined over 21%.

You see, right now, no one cares much about the housing market data. You really have to question what happens when the data starts to matter.

I continue to watch the U.S. housing market very closely. As I said earlier, it could impact the overall U.S. economy and homeowners. It could hurt the portfolio of investors who hold home-builder stocks.