Homebuilder
Lennar (LEN),
whose shares are down nearly 45% this year, provided a dose of good
news Tuesday. The company reported earnings and revenue that topped
forecasts and said that new orders for homes were up 4% from a year ago.
Shares of Lennar ticked up Tuesday on the news. Rival builder
KB Home (KBH), which will report earnings after the closing bell Wednesday, inched higher as well.
Yet
Stuart Miller, Lennar's executive chairman, struck an extremely
cautious tone when describing the housing environment. This is a
"complicated moment in the market," he said in an earnings release.
"The
weight of a rapid doubling of interest rates over six months, together
with accelerated price appreciation, began to drive buyers in many
markets to pause and reconsider," Miller said, adding that Lennar "began
to see these effects after quarter end."
Rising rates dampening, but not killing, demand for homes
Miller
said "the Fed's stated determination to curtail inflation through
interest rate increases and quantitative tightening have begun to have
the desired effect of slowing sales in some markets and stalling price
increases across the country." He added that "the relationship between
price and interest rates is going through a rebalance."
This slump is having an undeniable impact throughout the housing industry. Online real estate brokerage
Redfin (RDFN) and several other housing companies have started to
lay off their workers.
Some
experts are hopeful that a further slowdown in housing won't wreak
havoc on the economy the way the bursting of the housing bubble and
subprime mortgage meltdown did in 2008.
"Banks
are in much better shape now, and they are not giving out loans to
people with no credit or bad credit," said Michael Sheldon, chief
investment officer with RDM Financial Group at Hightower. "If there is a
recession, the impact on housing could be mild. There are not as many
imbalances as we had before."
Home prices have continued to spike in many markets as well, despite the broader market and economic turmoil.
The
National Association of Realtors said in a report Tuesday that the
median home price in May topped $400,000 for the first time, hitting a
record of $407,600. That's up nearly 15% from a year ago.
But existing home sales fell for the fourth straight month, according to NAR, dipping 3.4% from April.
Housing slowdown ... but not a crash
"Further
sales declines should be expected in the upcoming months given housing
affordability challenges from the sharp rise in mortgage rates this
year," said NAR chief economist Lawrence Yun.
"Nonetheless,
homes priced appropriately are selling quickly and inventory levels
still need to rise substantially ... to cool home price appreciation and
provide more options for home buyers," Yun added.
But
that may not mean that prices will suddenly plunge — demand for homes
is still holding up reasonably well. The issue is affordability.
"We
think the housing market is lining up to mimic the late 70s to early
80s when price growth skidded to a halt but did not crash," Brett Ewing,
chief market strategist with First Franklin Financial Services, said in
a report.
Yet many prospective buyers — especially younger people looking to make the jump from
renting to home ownership — cannot afford homes.
Still,
many current owners who are selling a property in order to trade up and
buy another home are able to get deals done. So although the housing
market may be starting to show some cracks, the foundation remains
relatively strong. It may take a much bigger leap in mortgage rates to
scare prospective buyers away for good.
"The
average property sat on the market for just 16 days in May, which marks
a new record low for this measure," Jefferies economists Aneta
Markowska and Thomas Simons said in a report Tuesday following the
existing home sales data release.
"This suggests that supply is still scarce and any new inventory put on the market is still moving very quickly," they added.
Up next
Federal
Reserve Chair Jerome Powell testifies on the state of the US economy
before the Senate Banking Committee. The hearing kicks off at 9:30 a.m.
ET.
Coming tomorrow: Attention will remain on Powell as he moves over to the House Financial Services Committee.
— CNN Business's Anna Bahney contributed to this story.
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