The Housing Recession

The cracks in the nation’s housing market continue to grow. Yesterday, the government reported that U.S. homebuilding sank to its lowest level in over a year, with housing starts plunging 9.6% as higher construction costs continue to weigh on builders.

Earlier this week, the National Association of Home Builders (NAHB) said its sentiment index dropped for the eighth straight month and turned negative. The data led the NAHB to declare the nation is facing a “housing recession.” The index has not been in negative territory since a very brief plunge at the start of the pandemic.

The number of home sale cancellations also soared in July to another two-year high as buyers pulled back. About 63,000 home sales were canceled — roughly 16% of homes that went into contract, according to real estate firm Redfin. That is up from 15% of deals that were canceled in June, and compared to 12.5% that were canceled a year ago.

Tomorrow, the National Association of Realtors will report on sales of existing homes for July. Expectations are for a sales rate of 4.85 million homes, 270,000 fewer than in June. Existing home sales have fallen for five consecutive months.

“Shares of the SPDR S&P Homebuilders ETF (XHB) are down 21% year-to-date, far underperforming the broader market. Homebuilder stocks are down far worse, including Toll Bros. (TOL)—down 31.6%—and DR Horton (DHI)—down 27.5% year-to-date. Until the monthly supply of pre-owned homes on the market drops, as well as “time on the market’, for existing homes, homebuilder stocks are likely to remain under pressure, especially as interest rates continue to rise,” said Caleb Silver, Editor-in-Chief of Investopedia.