After years of a booming housing market, the industry is now hitting a new snag and could fall into recession.
In July, the number of housing starts took a significant downturn, which could be a sign that the market is in trouble, the Washington Examiner reported.
Housing starts measure the annualized change in the number of new residential buildings and homes that began construction.
Last month, the number of housing starts fell by 9.6 percent. That puts the annualized rate at 1.45 million, a report from the Commerce Department outlined, according to the Examiner.
Even permits to build new housing slowed down by 1.3 percent in July, the Examiner reported.
On top of the declining housing starts, the National Association of Homebuilders/Wells Fargo housing market index fell for the eight month in a row, Fox News reported.
These indexes measure the “pulse of the single-family housing market,” so as they have fallen, it indicates a serious lack of confidence in the housing and home building markets.
Fox News reported that the index fell to 49, which marks the worst stretch for the housing market since the infamous 2008 housing collapse.
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This index fall is especially shocking when compared to where it stood just a year ago, at 80.
In November of 2020, the index actually hit a 35-year-high of 90 when the interest rates were at record lows.
But now, with soaring inflation, the Federal Reserve has tightened its monetary policy and hiked interest rates in an attempt to curb the inflation crisis.
This has naturally played out in the housing market, and now home building and buying is seeing the downturn.
“Net, net, housing permits have been shrinking every month since the first Fed rate hike in March this year as home builders know what’s-what and which way the winds are blowing,” said Chris Rupkey, the chief economist at FWDBONDS, according to the Examiner.
“Recession has come to the residential construction markets right on schedule as interest-rate sensitive housing is the first sector to turn down when soaring mortgage rates make it more costly for home buyers,” Rupkey added.
“Tighter monetary policy from the Federal Reserve and persistently elevated construction costs have brought on a housing recession,” NAHB chief economist Robert Dietz said, Fox News reported.
Taking all this into account means that buyers are facing the big hurdle of affordability now, Dietz also said, CNBC reported.
But the direction that takes will largely determine the future of the housing market, so buyers and economists are closely watching.
“The total volume of single-family starts will post a decline in 2022, the first such decrease since 2011. However, as signs grow that the rate of inflation is near peaking, long-term interest rates have stabilized, which will provide some stability for the demand-side of the market in the coming months,” Dietz said.
