NAHB Chief Economist Robert Dietz recently provided this housing industry overview in the bi-weekly newsletter Eye on the Economy:
The housing slowdown continued into the New Year, as markets grappled with an evolving monetary policy outlook and a federal government shutdown. Home builder confidence
, as measured by the NAHB/Wells Fargo Housing Market Index, declined four points in December, registering a level of 56 — the lowest reading in more than three years.
The slowdown during the second half of 2018 was primarily caused by rising interest rates and the subsequent decline of housing affordability
. For example, existing home sales in November were 7% lower than a year earlier, while pending sales were down nearly 8%. Similarly, single-family construction starts declined 4.6% in November. Nonetheless, single-family construction totals for the year are expected to be approximately 3% higher than the previous year, making 2018 the best year for residential construction since the Great Recession.
While the labor market remains hot
— December job gains reached 321,000 — housing and other sectors of the economy are showing definite signs of slowing. For this reason, the stock market endured a large selloff after the Fed raised the short-term federal funds rate in December to a top rate of 2.5% — the fourth hike of 2018.
calls for just two rate increases in 2019, one in each half of the year, accompanied by a mid-year data-focused policy pause so the central bank can evaluate economic growth and inflation pressures. Two rate increases are more than Wall Street is currently pricing in; however, it is lower than the three or four rate hikes that many economists — as well as the Fed’s own projections — had suggested for 2019 until quite recently.
The stock market selloff, while painful for investors, resulted in a significant decline in the 10-year interest rate, falling from above 3.2% to approximately 2.7% this week. This 50 basis point decline has reduced mortgage interest rates, which suggest a potential uptick in home sales during the next two months. Throughout the upcoming year, housing markets should expect rates to resume their ascent, heading near 5% by the end of 2019.
For additional insights, visit EyeOnHousing.org