In July I published a story on the “near record plunge” in homebuilder confidence.
This index goes from 0 to 100. Anything above 50 means that homebuilders have a positive view of the direction that the housing market is headed in over the next six months. Anything below 50 means that they have a negative sentiment.
In July we saw the second biggest drop in this index and the seventh straight decline. At the time I warned that this index will likely turn negative within the next month or two, meaning August or September. Last week that index dropped for the eight month in a row, turning slightly negative. With the exception of a brief plunge during COVID, this index has not been negative since 2014.
“Tighter monetary policy from the Federal Reserve and persistently elevated construction costs have brought on a housing recession,” said NAHB Chief Economist Robert Dietz.
Dietz also stated that “The total volume of single-family (housing) 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 is a lot more optimistic than I am on the economy. For the past 18 months we have been lied to. Inflation isn’t happening. Okay, inflation is happening but it’s only transitory. Okay, maybe it’s not transitory but should start dropping by spring 2022. Well, maybe it will be more like late summer 2022. The narrative keeps changing and the economic signs don’t look good. Sure, inflation shrunk slightly in July, but what happens if energy costs start to rise again like is expected by the end of the year? And how can inflation go back to normal if we are just entering what they are claiming is neutral territory with interest rates?
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