Housing data in focus as borrowing costs surges, builder sentiment fades

Surging mortgage rates finally clipping homebuilders' sentiment, but buyers are becoming more comfortable with the higher rate reality.

Aug 16, 2023 - 18:30

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Housing data in focus as borrowing costs surges, builder sentiment fades

Updated at 7:27 am EDT

The U.S. Census Bureau will publish key housing market data prior to the start of trading Wednesday, with investors looking for another boost in new supply as buyers grow increasingly comfortable with higher rates while sellers of existing homes remain reluctant to cash out of lower rate mortgages.

Economists expect a 2.7% increase in heading housing starts for the month of July, which are likely to rise to an annualized pace of 1.448 million units. A modest 1.7% decline is expected in building permits for new home construction, however, the second month in a row of fading interest in breaking ground on much-need single family home supply.

The National Association of Homebuilders said yesterday that it's closely-tracked sentiment index fell for the first time in 12 months in July, hit by the ongoing increase in domestic mortgage rates.

“Rising mortgage rates and high construction costs stemming from a dearth of construction workers, a lack of buildable lots and ongoing shortages of distribution transformers put a chill on builder sentiment in August,” said NAHB chairman Alicia Huey.

The Mortgage Banker's Association, in fact, said that 30-year fixed rates rose to 7.16% last week, up 7 basis points from the prior period and matching the late October peak of 7.16%, which was the highest since 2001.

That said, billionaire investor Warren Buffett made a big bet on the U.S. housing market last quarter, boosting stakes in three homebuilders, including D.R. Horton (DHI) - Get Free Report, which last month topped Wall Street forecasts with its third-quarter earnings, posting an 11% increase in revenue to $9.7 billion and a bottom line of $1.34 billion, or $3.90 a share.

The group also lifted its full-year sales forecast, as well as homes closed, as it looks to capitalize on a U.S. housing market that is bereft of new supply and seeing buyer demand slowly improving.