Housing Market Shows A Few Signs of Life, But Challenges Remain

The housing sector remains quite weak by historical standards, but it is at least showing some signs of welcome change. It’s far too early to suggest that housing is on the verge of an upturn, but the worst might be over. Unfortunately, it’s also possible that the market is about to deteriorate further as we acknowledge below. But first, let’s start with July’s solid performance in residential construction:

• Housing starts rose 5.2% month-over-month, the second consecutive monthly gain.
• Seasonally adjusted starts had not risen in consecutive months since 2023.
• Starts are up 12.9% year-over-year, the strongest growth since late 2023.
• Both single-family (+2.8%) and multi-family (+11.6%) starts contributed to the rise.

Inventory and Sales Trends

Sometimes improved residential construction comes as sales deteriorate, which doesn’t make for a sustained improvement. On the surface, July sales figures look mixed, but for the most part they are reassuring.

• Existing homes: Sales increased modestly (+2.0% m/m) as inventory climbed to the highest since 2019, which might be a minus for residential construction but a plus for availability and, thus, sales prospects. Prices remained nearly flat (+0.3% y/y), hinting at improving affordability.
• New homes: Sales slipped slightly (-0.6% m/m, -8.2% y/y), but the initial June estimate was raised substantially. Inventory eased, which is an encouraging sign for construction. The number of new homes on the market dipped below 500,000, reversing earlier highs. The median new-home price fell to $403,800, the lowest since 2022.

Financing trends

High mortgage rates have been a challenge for both buyers and sellers. Buyers face sticker shock on monthly payments, and many sellers are unwilling to trade low interest rates on current mortgages for the higher interest rates that would come with a replacement home. Fortunately, the situation is improving or at least seems poised for improvement.

• Lowest since October: The average rate on a 30-year fixed-rate mortgage in the latest week was 6.58%, which is the lowest since October.
• Potentially even lower: Federal Reserve Chairman Jerome Powell has signaled that interest rates might start coming down again, a move that also could bring down mortgage rates. On the other hand, as noted below, the reason for possible lower rates is a soft labor market.

Permits, Employment Tell a More Nuanced Story

While housing starts improved, building permits fell 2.8%, reaching their lowest level since mid-2020. This suggests future construction activity could slow, especially in multi-family housing where permits dropped nearly 10%.

Permits can recover quickly, but a bigger worry is the recent weakness in job growth. A housing recovery needs solid job growth. While there are arguably some silver linings to a weak job market – i.e., more inventory and lower prices as job losers are motivated to sell – a soft labor market clearly nets out to a negative.

The “good news” is that the housing market probably can’t get much worse than it has been.

Implications for Freight

Residential construction directly ties to demand for flatbed trucking, lumber, and building materials. Dry van benefits from new construction, too, but the typical homebuyer furnishing and fixture replacements and upgrades mean that higher sales of existing homes mean more freight. While near-term softness in permits raises caution, improving housing starts and rising sales could generate freight opportunities if momentum continues into the fall.

Key takeaway

The housing sector has not hit an inflection point, but signs point to the possibility as affordability challenges abate or at least stabilize. Home prices are no longer climbing, and the likelihood of Fed interest rate cuts raises the chances of falling mortgage rates.

Although housing is not the generator of freight that manufacturing is, it’s significant. Before carriers start preparing for a recovery, though, they need to watch the labor market. If the recent weakness in job growth is a trend and not just an outlier, that’s mostly bad news for a housing recovery.

For more insights like these, be sure to catch the FTR Trucking Market Update podcast each week, where we break down the latest trends shaping freight and driver capacity. 📊 Download the full podcast deck and listen to Episode 328 at ftrintel.com/trucking-podcast.