Among the countless economic variables that the Federal Reserve routinely parses for inspiration on what to do next in monetary policy, real estate’s numbers no doubt carry significant weight these days. The housing boom in recent years has delivered a more than a little zest to the economy, courtesy of the ample liquidity that the central bank has supplied in years past. As such, if there’s any chance that the Fed would cease and desist in its current round of interest-rate hikes, real estate trends are likely to deliver an early warning.
What, then, should we make of yesterday’s release of May’s housing starts, which posted a 5.0% rise over April’s numbers–the first month-over-month increase since January? Is the real estate boom resuming? Is the former slowdown that we’ve been hearing so much about over?
Not necessarily. As Asha Bangalore of Northern Trust observes in a research note to clients yesterday, “Two-thirds of the increase in [housing starts in] May was from new construction of multi-family units, which tend to show a larger degree of volatility compared with the starts of single-family units. The rebound in May is tentative, at best. News from the housing market is marked with stories of declining orders and lay offs.”
In fact, confidence among home builders has continued to drop precipitously this year, as tracked by the National Association of Home Builders/Wells Fargo Housing Market Index (HMI). The latest installment for June, released on Monday, maintained the trend: HMI dropped to its lowest level since 1995, NAHB reported. The cause? Rising mortgage rates, higher price hurdles for buyers, and the retreat of investors/speculators from the marketplace, according to NAHB’s press release. Adding to the gloom was the news that the fall in builder confidence was “broad-based and registered in every region this month.”