List of codes “Prices can fall much more”

The housing sector has had a dismal 2022, after a couple of glorious years. Photo: Getty Images

This year seems to have no end for those who work in the real estate sector. And everything indicates that the panorama will not change much in 2023, but that we will have to wait until 2024 to see any ray of hope.

“We think home sales will bottom out late in the first quarter, buoyed by the nearly 0.75% drop in mortgage rates since late October,” wrote Kieran Clancy, a senior economist at Pantheon Macroeconomics. “However, meaningful recovery is still a long way off and home prices may fall much further.”

After an overwhelmingly successful 18 months that spanned from mid-2020 to the end of last year, 2022 has been a year where almost everything went wrong for housing.

The monthly note published this Monday on the confidence of the builders became the perfect culmination of a nightmare that has lasted a year.

The December National Association of Home Builders (NAHB)/Wells Fargo Real Estate Market Index, popularly known as “builders confidence,” fell again this month for the 12th time this year .

That means homebuilder optimism got worse every month in 2022.

Confidence in the housing market among builders fell every month in 2022. (Source: Oxford Economics)

Builder confidence in the property market fell every month in 2022. (Source: Oxford Economics)

In the December report, NAHB chief economist Robert Dietz noted that the index’s drop to 31 from 33 in November was the smallest in six months, “indicating that we may be nearing the end of the cycle.” when it comes to builder confidence,” Dietz said. Any number above 50 reflects positive confidence in market conditions, but numbers below 50 indicate a negative view.

The recent decline in mortgage interest rates from over 7% in November to around 6.3% since last week has helped stabilize the market.

However, noting a smaller-than-expected drop to a level that marks the lowest reading for the index since 2012 (with the exception of April 2020), perfectly sums up the trajectory of the real estate sector this year.

If psychology is applied, we are moving from shock to denial, anger, bargaining, and now acceptance.

The survey of homebuilders in January was a blow to the government to take action to correct pressures in the supply chain.

In April, the housing market reached a “tipping point.”

In July, homebuilders were halting their projects because land, construction, and financing costs exceeded the expected value of the home.

The light at the end of the tunnel will not arrive until 2024

Now that 2022 is coming to an end, we will have to wait until 2024 to see any change in the real estate sector.

“NAHB expects the weak housing situation to persist through 2023 and we forecast a recovery in 2024, given the 1.5 million home shortfall across the country and lower interest rates expected in the future. with the looser monetary policy that the Federal Reserve will implement in 2024”, according to Dietz.

Real estate stocks, better than the market

When it comes to construction stocks, however, the future has materialized in recent months: Since mid-June, the S&P Homebuilders ETF (XHB) has risen 15%, versus a gain of 5% for the S&P 500.

Construction stocks have largely outperformed the S&P 500 in the past six months as investors begin to bet on a turnaround in the housing sector for domestic construction companies.

In recent weeks, we have seen results from Toll Brothers (TOL) and Lenner (LEN) exceed expectations, particularly as builders began to manage their delays; that is, the houses they were building were paid in part by the buyers, and they wait for better conditions to be more aggressive.

However, a large part of the home construction business does not pass through the hands of the large national construction companies.

Like politics, the vast majority of interactions in real estate occur at the local level. However, smaller local businesses are suffering badly from this year’s market ebbs and don’t know when that pain will end.

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