Daybreak Weekend: US Housing, German Elections & President Xi's US Visit

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.

Tiwa Adebayo (0:24)

I'm Tiwa Adebayo in London, where we're asking if Germany is on the cusp of a political shift.

Doug Krizner (0:29)

I'm Doug Krizner looking ahead at the meeting between Donald Trump and Xi Jinping, set for Thursday in Washington.

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That's all straight ahead on Bloomberg Daybreak Weekend. On Bloomberg 1130 New York, Bloomberg 99.1 Washington DC, Bloomberg 92.9 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 some key housing data in the US. The government's report on new home sales for August is due out this Thursday. Here to discuss is Drew Redding, US home building analyst for Bloomberg Intelligence. Great to speak with you ahead of the print, Drew. Of course, this comes after we got that surprise jump in existing home sales just a couple of days ago.

Are we finally starting to see some green shoots in this pretty depressed housing market that we've seen over the last several months?

Drew Redding (1:34)

Yeah. So I think depressed is the right way to frame it.

There was a modest beat on the pending home sales side, but we're still bumping along the lowest levels since the index was released.

You know, the existing market remains frozen. Activity is about 20% below what a normalized level is. You know, it really comes back to affordability, as we all know. It's the 50% to 80% rise in home prices depending on the market. It's mortgage rates now back above 7%, which has certainly stalled demand. You know, we came into the year thinking that lower mortgage rates would boost activity, but the spring selling season ended up being a disappointment, and that weakness has really persisted in the summer. And now, as I said, with rates back above 7%, we would expect to see that renewed pressure on demand. We actually heard from Lennar recently, which is the home building industry's second biggest builder by volume. And they actually told us that conditions deteriorated through their quarter. Their orders were down 9%, even with that expanding community count. And one of the things that they highlighted, not just rates, which obviously had a big impact, but renewed pressure on consumer sentiment, just with all the geopolitical tension, more concerns about the economy and the outlook for employment. So a lot of factors which are straining demand at the moment.

Nathan Hager (2:59)

Yeah. I mean, we've talked about so many of these factors for so long here. But just to get to the print that we're expecting this week, I think the last time I looked at the expectations from economists, we're calling for a modest uptick in new home sales compared to July.

What's behind that?

Drew Redding (3:20)

Yeah. So the market's looking for, like you said, a modest increase from last month, but still down pretty sharply from your year ago levels. And I think it's important to keep in mind that this data, as soon as it releases, is going to be irrelevant. I mean, it's already backward looking since mortgage rates were about 6.8% in August. And like I said, we're back up up 7% now.

So really, the best leading indicator we have measuring kind of real time new home demand is from the Mortgage Bankers Association, which releases the Builder Application Survey, which is basically the applications that the builders are seeing within their captive financing arms. And what that told us is that the applications were down about 6% sequentially and from last year. And just to put some context around that, typically seasonality would suggest that you get about a 2% increase for this time of year. So, it highlights some of that elevated pressure on demand.

Nathan Hager (4:14)

Okay. So, given seasonality, what's your outlook heading into the rest of this year at a time where I would imagine there's probably going to be a little bit less incentive to get people to go through the door as the weather starts to cool down?

Drew Redding (4:34)

Yeah. So, for the new home market, we've got sales down mid-single digits for all of 2026

With rates heading back above 7 percent, we do expect to see some renewed pressure on demand. And really what that means for the builders is that they're going to have to keep their foot on the gas pedal in terms of base price reductions and incentives. And that's really what's been pressuring their margins over the last couple of years. As I mentioned, coming into the year, or even a couple of quarters ago, it looked like the industry was starting to make a little progress in terms of being able to moderate their use of incentives. We heard from Lenar, they're down from 14% to 12%. But it's really not stoking demand with rates at 7% and home price is still high. So we expect to see that weakness persist.