Housing Headwinds: War and Economic Uncertainty Continue
| Housing Headwinds: War and Economic Uncertainty Continue |
| Cracks are showing in the economic foundation due to the Iran war. As NAHB Economics forecasted at the International Builders' Show, the housing market needed stability to have a better spring season than in 2025, when tariffs and macro uncertainty stalled home buying conditions. The ongoing Iran war and higher oil prices have investors concerned. The rise in the 2-year Treasury rate is a vote of no confidence in current economic policy, with the yield up more than 40 basis points since the start of March. For a second straight week, markets are placing a higher probability on a Federal Reserve rate hike than a rate cut at coming meetings, as inflation concerns mount. The price of oil (WTI) increased again last week as markets braced for a longer and more damaging conflict. Oil prices topped $100 in the U.S., up 65% since the start of February. Global prices are higher with the Strait of Hormuz continuing to be effectively closed for oil exports. However, stock prices rebounded and oil prices steadied on unconfirmed reporting of Iranian interest in ending the war. Such interest, in line with comments from the Trump administration, would suggest that ongoing economic impacts of the war will be more short-term than long-term. Nonetheless, as conditions now stand, NAHB's April forecast revision will project lower GDP growth, more inflation, and a single-digit percent decline for single-family housing starts in 2026 as a result of growing and serious economic headwinds. Recession risk has moved to 25% in the last two weeks. The 10-year Treasury yield is above 4.3%, up almost 20 basis points since the start of the year. Equity prices have staged a significant decline. And Freddie Mac reported that the 30-year fixed-rate mortgage averaged 6.38% for the week ending March 26 — the highest reading since September. Combined with ongoing declines for consumer sentiment, home sales activity will be under pressure in April. However, rates improved at the start of the week as the President indicated progress was being made on a resolution for the war, and Federal Reserve Chairman Jerome Powell repeated that inflation expectations remain anchored. In March, the Fed held the federal funds rate at a top rate of 3.75% and emphasized that uncertainty around the economic outlook remains elevated. While expectations of a rate hike have increased, the most likely option is the Fed holding rates at current levels as international events unfold. Housing data started the year on the weak side. Sales of newly built single-family homes fell 17.6% in January to a seasonally adjusted annual rate of 587,000. While the three-month moving average of recent data was flat compared to a year ago, the early data are not promising. Inventory of new construction is also producing caution signals, with the number of completed-ready-to-occupy homes standing at 128,000, up from 116,000 a year ago. All in, the near-term economic and housing outlook is highly uncertain with headline risk related to international political and military developments. And additional policy uncertainties exist with a leadership change pending for the Fed in May, significant supply-side housing legislation under debate in Congress (albeit currrently with a harmful rule for single-family built-for-rent construction), and ongoing risks associated with AI. Eye on Housing Dr. Robert Dietz NAHB Chief Economist @dietz_econ |
