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U.S. home builder sentiment plummets, service sector activity in the New York region ground to a halt

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July 18 (Reuters) – U.S. homebuilder sentiment plummeted in July to its lowest level since the early months of the coronavirus pandemic as high inflation and the highest borrowing costs in more than a decade all but halted the flow of customers.

At the same time, activity in the service sector in the US northeast turned negative this month for the first time in a year, and companies do not see improvement over the next six months.

The National Home Builders Association/Wells Fargo Housing Market Index fell for the seventh consecutive month to 55, its lowest level since May 2020, from 67 in June, the NAHB said in a statement Monday. Readings above 50 mean that more builders see market conditions as favorable rather than bad.

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The July figure was below all 31 estimates in a Reuters poll of economists, which saw the median expectation of a decline of 65, a 42-point drop in April 2020 when most of the country was under quarantine due to COVID-19.

“Production bottlenecks, rising house building costs and high inflation are forcing many builders to halt construction because the cost of land, construction and financing exceeds the market value of a home,” said NAHB Chairman Jerry Conter, a Savannah, Georgia-based builder and developer. , the message says. “Another sign of a weakening market is that 13% of developers in the HMI survey reported lower house prices last month to support sales and/or limit cancellations.”

The current single-family home sales component fell from 76 to 64. The single-family home sales expectations for the next six months fell to 50 from 61, and the potential buyer traffic index fell from 48 to 37.

Reuters Graphics

RATE HIGH STARTS TO BE SATISFIED

The NAHB report is the first of a list of data released this week on the deteriorating housing market, which has been growing during much of the pandemic. Americans looking for more living space, often outside cities, and full of cash from pandemic relief payments, big stock market gains, and access to mortgages at record low interest rates thanks to Federal Reserve rate cuts, led the market. housing to congestion and Housing prices have been rising since the summer of 2020.

Now much of that is changing rapidly as the Fed, facing inflation at its highest level in four decades, has begun raising rates, and it’s far from over. The US central bank raised its overnight benchmark rate by 1.50 percentage points this year from near zero and could raise it another 2 percentage points or more by the end of the year.

The Federal Reserve is hoping its rate hike and nearly $9 trillion cut in U.S. Treasury bills and mortgage-backed securities will cool hot consumer demand, which for various reasons is outpacing the supply of goods and services and fueling inflation. .

The housing market is particularly sensitive to interest rates and so far stands out as the sector most notably affected by the Fed’s policy change. According to the Mortgage Bankers Association, the cost of mortgages has risen sharply this year, and contract rates on a 30-year fixed-rate mortgage recently approached 6%, the highest in 14 years.

The Commerce Department is expected to report on Tuesday that new home builds rose last month from the lowest level in more than a year, although some economists see any improvement as short-lived.

“We expect housing demand to start to lose some momentum in the second half of 2022, averaging around 1.5 million in the fourth quarter, but deteriorating builder sentiment makes the outlook less favorable.” — Nancy Vanden Houten, Lead Economist Oxford Economics for the USA. , – wrote in a note.

Adding to the weakness in the new home market that has recently surfaced in NAHB data and home start-up data, existing home sales fell for four consecutive months through May, and data due Wednesday from the National Association of Realtors is expected to show that the decline continues. in June, with the pace of sales being the lowest since June 2020.

Meanwhile, a study by the Federal Reserve Bank of New York showed that service sector activity in the region, which spans New York State, northern New Jersey and southwestern Connecticut, declined in July for the first time in more than a year.

And while service-sector employment growth remained positive and firms reported early signs of relief from high inflation, industry executives reported their bleakest six-month outlook since November 2020.

“Firms believe that activity will not increase over the next six months,” the report said.

Reuters Graphics
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Reporting by Dan Burns; Editing by Chizu Nomiyama and Paul Shimao

Our Standards: Thomson Reuters Trust Principles.

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