The housing market may be at a turning point. While demand remains strong amid sturdy job and income growth, limited supplies and rising prices and mortgage rates threaten to take an increasing toll on sales. In a light week of economic news, reports on builder sentiment, housing starts and existing home sales could help clarify the outlook.
Builder confidence has been fairly strong as a result of the healthy demand for single-family homes, but rising material costs may be dampening contractors' optimism, says Nomura economist Lewis Alexander. Climbing mortgage rates also could be playing a role. Still, economists expect the National Association of Home Builders to announce Monday that its builder sentiment index edged up in June to a solid level after dipping the previous month.
Housing starts fell 3.7 percent in April, but that was driven by a sharp decline in groundbreakings for volatile multifamily projects, Alexander notes. Meanwhile, tight housing supplies continue to fuel demand for single-family homes, though construction worker shortages and the limited availability of lots has tempered building activity. Economists estimate the Commerce Department will report Tuesday that housing starts rose 1.7 percent in May to a seasonally adjusted annual rate of 1.3 million.
On Wednesday, the National Association of Realtors releases its monthly report on existing home sales. Sales have been choppy, falling 2.5 percent in April, because of the supply crunch and the higher prices and mortgage rates. Thirty-year fixed mortgage rates rose the past week after falling for two straight weeks. They're now at 4.62 percent, up from 4.15 percent early in the year, according to Freddie Mac. Yet pending home sales increased in February and March, Alexander noes, and despite a modest decline in April, that should point to an increase in completed sales for May. Economists estimate the NAR will announce that existing home sales rose 1.8 percent last month to a seasonally adjusted annual rate of 5.6 million.
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