Chart of the Week
The U.S. residential real estate market is navigating through a challenging period. The latest NAHB Housing Market Index reveals a further decline in builder confidence, hitting its lowest point since December 2022. Additionally, building permits for single-family homes have dropped by 7% over the past two months.
OUR ANALYSIS
This situation is largely driven by persistently high mortgage rates, which continue to weigh on sector confidence. Sales of existing homes remain sluggish. Transactions in the new-build market are looking more positive, but the number of homes for sale has risen sharply to levels not seen since the 2008 financial crisis. This increase could lead builders to scale back on new construction, particularly as vacancy rates normalize after their post-Covid lows.
The construction sector had been building many homes with a limited number of workers, reflecting high productivity. Now, the ratio of homes under construction to employment has returned to normal levels. With fewer projects underway, any further slowdown could lead to job losses.
With high financing costs and high home prices, the residential sector remains under close watch. The coming months will be crucial in determining whether this market can regain some balance or if it is headed for another contraction cycle.
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Written on 23 May 2025. Opinions subject to change.
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