Homebuilder confidence in the South dropped to its lowest level all year in June, hitting an index of 43, according to the latest data from the National Association of Home Builders/Wells Fargo Index. This marks a decline from 45 in May and is the lowest reading since December 2023. The fall represents the third consecutive monthly decline in the region.
National Index: The national homebuilder confidence index also fell for the third straight month, matching the Southern index at 43. Economists had predicted the national index would hold steady at 45 in June.
– All three national Housing Market Index (HMI) component indices posted declines in June and dipped below the critical threshold of 50 for the first time in 2024.
– The HMI index for current sales conditions dropped three points to 48. The component measuring sales expectations for the next six months fell by four points to 47. The gauge charting traffic of prospective buyers declined two points to 28.
What they’re saying: Robert Dietz, NAHB’s senior economist, highlighted the challenging situation for the Federal Reserve regarding inflation control. “We are in an unusual situation because a lack of progress on reducing shelter inflation, which is currently running at a 5.4% year-over-year rate, is making it difficult for the Federal Reserve to achieve its target inflation rate of 2%,” said Dietz.
– Dietz pointed out that the only way to reduce shelter costs is by increasing the housing supply, which requires a more favorable interest rate environment for construction and development loans.
How This Impact Rates: Dietz is making an interesting argument, one that we have talked about before. Conventional thinking is raising rates puts downward pressure on demand thus lower inflation as fewer dollars are chasing the same amount of goods. However, Dietz is arguing that because inventory levels are so depressed we need lower rates to 1) encourage people to list their homes and 2) builders to build. While this does fly in the face of conventional wisdom, as more and more people realize that shelter costs are keeping inflation higher more and more people are starting to wonder if lower rates could actually lower inflation? The only concern is that even if lower rates increase housing supply and lower shelter inflation it could also accelerate prices in other areas negative the benefits of lower shelter inflation.
