Daybreak Weekend: US Housing, Europe Data, Yen Intervention

**SPEAKER_1** (0:02)
Bloomberg Audio Studios, podcasts, radio, news.

**Nathan Hager** (0:10)
This is Bloomberg Daybreak Weekend, our global look at the top stories in the coming week from our Daybreak anchors all around the world. Straight ahead on the program, we look to some key housing data in the US. I'm Nathan Hager in Washington.

**Stephen Carroll** (0:22)
I'm Stephen Carroll in London. We're looking ahead to the next economic indicators for Europe and what it signals about the trajectory of our stocks and the economy for the rest of the year.

**Doug Krizner** (0:31)
I'm Doug Krizner looking at the fate of the Japanese Yen and a reality check for Hong Kong.

**SPEAKER_1** (0:38)
That's all straight ahead on Bloomberg Daybreak Weekend, on Bloomberg 1130 New York, Bloomberg 99.1 Washington, DC, Bloomberg 929 Boston, DAB Digital Radio London, Sirius XM 121, and around the world on bloombergradio.com and the Bloomberg Business App.

**Nathan Hager** (1:02)
Good day to you, I'm Nathan Hager. We begin today's program with a look at the US housing market. This week we get figures on housing starts and pending home sales for the month of July. For more on this and the latest in the home building sector, we are joined by Drew Redding, US home building analyst for Bloomberg Intelligence. Great as always to speak with you, Drew. And of course, it's been a pretty hot summer. So are we expecting many projects to have gotten off the ground in the last month?

**Drew Redding** (1:28)
So when we think about housing starts, we're down about 5% year to date on the single family side, and we expect to see further pressure from that side of the market. We see builders that are continuing to scale back production, giving an already elevated supply of spec home inventory that they still need to work through. And we've got sales in the new home market that are up just about 2% year to date. So it's taken a little bit longer to clear that inventory.
You know, now the large public home builders have done a pretty good job in drawing down their complete home inventories. Of course, they've had to remain pretty aggressive in their use of incentives to do so. But we are starting to see more of a shift away from that spec production model, which is building the home before you have a buyer. You know, many of the builders are looking for a better balance. So what they're trying to do is basically match production with the sales pace rather than putting more specs into a slow market.

**Nathan Hager** (2:28)
Sounds like that speaks to an overall trend of the home market in general, moving away from buying toward renting. Is that kind of what you're pointing to as an overall trend here?

**Drew Redding** (2:40)
Yeah. So I think when you look at the for sale market relative to rentals, when you think about affordability, the high price of the homes, mortgage rates back towards 7 percent, the math certainly does favor renting over owning. We've done some survey work that shows the same, and it's not that current renters don't want to own, but we find a majority of them do. It's simply that the economics of it don't make sense right now.

**Nathan Hager** (3:08)
So what does that do for the overall sentiment in the home building market when we're seeing a trend toward more of those multifamily projects as opposed to single families that you would think have better profit margins?

**Drew Redding** (3:23)
Well, it's a good question. And I mentioned that in the new home market, we have sales paces down significantly from last year. The market as a whole is up only about 2% year to date. And really the way builders are having to grow is to expand their community count. So they're not seeing it on the pace side, but really by increasing the number of subdivisions that they're operating from.
So it's really a tough growth environment on the single family side. And if you think about the market, certainly there are pockets of relative strength and relative weakness. When you think about the entry level buyer who is typically someone that may be coming out of a rental situation, we see more stress as you would expect across that part of the market, because those tend to be the most price sensitive home buyers. On a relative basis, we have seen more strength at the move up in luxury segments. These are typically the buyers that are coming out of an existing home, so they've built up equity over the last couple of years. In the luxury side, they're benefiting from the run up in equity markets. They tend to be less sensitive to mortgage rates. We're seeing relative strength on that side, but there's really not a part of the market that is completely immune to what's happening in the broader economy.