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November 19, 2018 at 12:07 PM
Source: Bloomberg
Confidence among U.S. homebuilders plummeted by the most since 2014 as the highest borrowing costs in eight years restrain demand, adding to signs of a cooling housing market that will weigh on the Federal Reserve’s debate over how far to raise interest rates.
The National Association of Home Builders/Wells Fargo Housing Market Index dropped eight points in November to 60, the lowest level since August 2016, according to a report Monday. That compared with the median estimate of economists for a one-point drop to 67.
Shares of homebuilders initially fell and 10-year Treasury yields erased gains following the report, which represents one of the first breaks in elevated levels of business and consumer confidence that have persisted since Donald Trump was elected president in November 2016.
While the index remains in positive territory, the group called on policy makers to take note of the housing situation as a possible warning sign about the broader economy.
A housing slowdown may have implications for how far the central bank will extend its run of eight interest-rate hikes since late 2015. The Fed is expected to raise interest rates in December and will also update projections that in September showed a median outlook of three quarter-point hikes next year.
“Rising mortgage interest rates in recent months coupled with the cumulative run-up in pricing has caused housing demand to stall,” NAHB Chief Economist Robert Dietz said in a statement accompanying the data. “Given that housing leads the economy, policy makers need to focus more on residential market conditions.”
The NAHB sub-index measuring current sales fell seven points to 67, the lowest since August 2016, while the index for the six-month outlook for transactions dropped 10 points to 65, the lowest since May 2016. A measure of prospective buyer traffic declined eight points to 45, also the lowest since August 2016.
The buyer-interest gauge is “pretty weak” and may be even more concerning if it stays below 50 for a few months, said Blerina Uruci, an economist at Barclays Plc.
“The housing market continues to be in the recovery phase, but I see it as losing momentum now, as that recovery softens, as we get late in the business cycle,” Uruci said.
