It is supply and demand, what can people afford and what can products be sold for. As builds are not instantaneous and a lot speculation have happened in the housing markets. Builders are wise to cool building and maintain a steady supply without flooding the market and be forced to sell at a loss.
Sometimes, when you set out to destroy demand, you can’t help but destroy supply along the way. That’s the current predicament for the U.S. economy, and it is playing out vividly in new housing data.
Why it matters: The Federal Reserve is trying to squeeze demand in order to tame inflation. But to the degree its policies result in less stuff being made, it risks leaving the economy worse off, even once inflation comes down.
This is because interest rate increases are a blunt tool that hammers different parts of the economy in different ways.
Driving the news: Builders started work on 8.1% fewer single-family homes in June than in May, the Census Bureau said today. Overall housing starts, buoyed by strong apartment construction, fell 2%. The number of permits issued fell 0.6%.
State of play: The Fed’s rate hikes have sent mortgage rates surging and would-be homebuyers’ wealth falling. That is helping to suppress demand for new houses, which is part of the goal.
The flip side of that, however, is homebuilders’ confidence has plunged, making builders wary of constructing more single-family homes that may not sell at high enough prices.
In the new data, June single-family home starts dipped below 1 million for the first time since the early phase of the pandemic.
What they’re saying: In an earnings call last month, executives at homebuilder Lennar described cooling housing demand.
“Given the Fed’s expressed conviction to combat inflation by the definitive statements made recently, it seems that these trends will harden, as the Fed continues to tighten until inflation subsides,” said Stuart Miller, the company’s executive chairman.
“While we can choose to fight against the trend, the reality is that the market has been changing, and we are getting ahead of it by making all necessary adjustments,” though he also expressed a commitment to maintaining a “reasonable volume” of construction given housing shortages.Axios Macro By Neil Irwin and Courtenay Brown · Jul 19, 2022