US housing market wobbles

The US housing market's recovery from the global financial crisis of 2008, which has seen prices hit new all-time highs, may be beginning to falter. 

906_MW_P05_Markets
The wind is no longer behind US houses

The US housing market triggered the global financial crisis in 2008 when mortgage-backed securities plummeted, leading to a chain reaction across the banking system. So investors tend to keep a very close eye on it. And the latest news suggests that the recovery from the crisis, which has seen prices hit new all-time highs, may be beginning to falter.

Housing starts in June plunged 12.3% from May, according to the US Census Bureau and the US Department of Housing and Urban Development. It was thelargest monthly percentage decrease in a year and a half. Analysts had pencilled in a 2.2% drop.

Housing starts are an economic indicator reflecting the number of privately owned housing units on which construction has begun. Analysts believe the current slide might be due to a shortage of qualified construction workers, along with the rising costs of imported materials such as lumber (partly a result of tariffs).

A broad-based decline?

The decline in house construction was reported across many regions. "Every region posted a decline so this wasn't about a regional weather report," says David Rosenberg of Gluskin Sheff. "Don't expect an improvement anytime soon." Housing starts data is "exceptionally volatile", notes Sharon Nunn in The Wall Street Journal. However, residential building permits, which can signal how much construction is in the pipeline, fell 2.2% from May.

The constraints encountered by developers coincide with a squeeze on demand. While prospective buyers are benefiting from high rates of employment and wage growth, they are also grappling with rising long-term interest rates and the consequent higher mortgage costs.

A lack of affordability is also denting demand. Price rises have been "easily outpacing wage gains", says Katia Dmitrieva on Bloomberg. The Case-Shiller National Home Price index, which measures average house prices in major metropolitan areas across the US, rose by 6.4% year-on-year in April, down from 6.5% in March. But while price gains may have lost a tiny bit of momentum, prices continue to grow faster than both incomes and inflation. Half of the US housing markets in the country are now above their 2006 peaks, according to The Wall Street Journal.

"It's too early to declare a trend," John Pataky of TIAA Bank told the same paper. The big picture is still positive. Housing starts rose by 7.8% year-on-year in the first six months of 2018. The best of the post-crisis rebound may be over, however, and a surge in prices looks unlikely now. But given what happened the last time this market went berserk, that's probably just as well.

Recommended

10 ways to improve your home and interiors
Advertisement Feature

10 ways to improve your home and interiors

From shepherd huts, to pool tables, smart technology to high-tech security, here are some great ideas for home improvements
26 Oct 2020
Why house deposits and pensions don’t mix
Pensions

Why house deposits and pensions don’t mix

First-time buyers should not be able to raid their pension savings to pay for a house deposit.
26 Oct 2020
Is London’s office market a bargain?
Property

Is London’s office market a bargain?

Private-equity groups are swooping on London’s property companies, which are trading on steep discounts to net asset value.
23 Oct 2020
US election: stockmarkets don’t care who’s in the White House
US stockmarkets

US election: stockmarkets don’t care who’s in the White House

The economic cycle and America's central bank have a much bigger effect on long-term stockmarket returns than whether Democrats or Republicans are in …
23 Oct 2020

Most Popular

The Bank of England should create a "Bitpound" digital currency and take the world by storm
Bitcoin

The Bank of England should create a "Bitpound" digital currency and take the world by storm

The Bank of England could win the race to create a respectable digital currency if it moves quickly, says Matthew Lynn.
18 Oct 2020
Don’t miss this bus: take a bet on National Express
Trading

Don’t miss this bus: take a bet on National Express

Bus operator National Express is cheap, robust and ideally placed to ride the recovery. Matthew Partridge explains how traders can play it.
19 Oct 2020
Three stocks that can cope with Covid-19
Share tips

Three stocks that can cope with Covid-19

Professional investor Zehrid Osmani of the Martin Currie Global Portfolio Trust, picks three stocks that he thinks should be able to weather the coron…
12 Oct 2020