US housing market data released this week reveal a weakening property sector that is beginning to raise serious concerns about construction, consumer confidence and wider economic stability.
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New home sales fell short of expectations in June, annualising at 627,000 compared to the 650,000 forecast. This followed a disappointing drop in existing home sales to 3.93 million, down from 4.04 million in May, according to ING's Chief International Economist, James Knightley.
'The weakness has come as a bit of a surprise given the recent uptick in mortgage applications for home purchase,' Knightley observed. 'But set against weakening demand fundamentals, it certainly isn't a shock.'
The affordability crisis remains central to the slowdown. Home prices have risen by 50% since 2020, while mortgage rates have more than doubled. 'The typical monthly payment for a new purchase on a 30-year fixed rate mortgage is now just shy of $3,000 per month, up from $1,500 five years ago,' Knightley noted. This puts the Mortgage Bankers Association index of applications at levels last seen during the 2008–2010 crash, and strikingly, even comparable to the mid-1990s when the US population was 70 million fewer.
So far, house prices have held up due to limited supply, with many homeowners locked into ultra-low mortgage rates. Yet that may be changing. The stock of new homes for sale has risen 16% since 2022, and existing home inventories are up 40%, increasing pressure on prices.
'Unsurprisingly, the National Association of Home Builders reports that sentiment amongst residential construction firms has collapsed,' said Knightley. Builders face a convergence of challenges: weak demand, labour shortages due to immigration controls, rising wages and tariffs, most recently on copper, introduced by President Trump. 'Profitability is under pressure, and construction activity looks set to slow, which will be another headwind for GDP growth.'
The S&P Case Shiller index has already recorded two consecutive monthly price declines, with more potentially to come. This could dent already fragile household confidence, given that the home remains the largest source of wealth for most Americans.
As the Federal Reserve comes under political pressure to cut rates, Knightley warns relief may not be forthcoming. 'With mortgage rates driven by the long end of the curve… short-end rate cuts may have very limited impact on homebuyer borrowing costs.'
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