Axios Macro

September 19, 2023
Housing ā and the non-affordability thereof ā is a central problem facing the U.S. economy. Today, we examine the underlying issue in light of the latest housing starts and homebuilder sentiment data. š šø
- That, plus some soft landing talk, in today's Macro.
This newsletter, edited by Javier E. David and copy edited by Katie Lewis, is 598 words, a 2-minute read.
1 big thing: The deep roots of America's housing crisis


Millions of millennials are hitting their prime child-rearing years and looking for a place to live. The Federal Reserve is determined to bring inflation down using high interest rates. Those forces are coming to a head in the U.S. housing market.
Why it matters: The standoff is creating a housing affordability crisis. Builders are faced with the dilemma of whether to construct houses that buyers may need help to afford, given 7%+ mortgage rates, or to hold back and therefore make long-term housing supply issues worse.
Driving the news: New data out this morning showed housing starts in August fell 11.3% from July. That was disproportionately driven by a drop in multifamily units like apartments and condos, but starts of single-family homes fell by 4.3%, too.
- Builders started work on new single-family homes at a 941,000 annual rate in August, which is 16% below the average pace of construction from mid-2020 to mid-2022.
- That aligns with a survey out yesterday from the National Association of Home Builders showing a steep decline in builders' confidence.
What they're saying: "High mortgage rates are clearly taking a toll on builder confidence and consumer demand, as a growing number of buyers are electing to defer a home purchase until long-term rates move lower," Robert Dietz, NAHB's chief economist, said in the release.
State of play: In June, the S&P/Case-Shiller national home price index reversed a short-lived dip in home prices, essentially returning to its all-time high from a year earlier (it was 0.02% lower, if you want to be pedantic).
By the numbers: It adds up to an affordability crisis. Imagine a house that cost $500,000 two years ago and a family taking out a mortgage for 80% of the purchase price. At the then-national average 30-year fixed mortgage rate of 2.86%, the monthly payment would have been $1,656.
- A 13.5% run-up in home prices since then (the national average per the Case-Shiller index) would push that home's price to $568,000. A surge in rates to 7.18% last week thus results in a monthly payment of $3,077 for the same house.
The bottom line: The broken housing market right now shows a downside of relying so heavily on interest rate policy to guide the economy.
- The only solution is more supply, but it won't be forthcoming as long as homebuilders are skittish about rates and affordability.
2. The case against a soft landing
Illustration: Sarah Grillo/Axios
In case you missed it, our Axios Markets colleague Matt Phillips had a great rundown this morning of some reasons to think that a recession-free soft landing for the economy is not in the cards.
- The narrative has become closer to conventional wisdom in recent months, with leading forecasters marking down their recession odds.
Yes, but: As Matt notes, several forces at play could undermine that story, including a recent surge in energy prices, increasingly tapped-out consumers and the lagged effect of banks tightening credit.
Our thought bubble: Thinking through the risks cataloged in the piece, we see an increasingly persuasive case for the "rolling recession" narrative, in which the different pockets of the economy experience pain sequentially.
- We've already been through downturns in housing, tech, banking and, to some degree, manufacturing.
- Problems in consumer-driven sectors, commercial real estate, energy-intensive industries and more could be on tap.
The bottom line: Whether the damage ever adds up in any short period to create an official recession ā a period of contracting employment, declining industrial production and so on ā is still an open question.
- But bad things can happen in the economy without it being a recession, especially if they don't all happen at once.
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