Daybreak Weekend: US Housing, Germany Summit, BOK Decision

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 housing data, along with some key media and tech earnings in the US. I'm Nathan Hager in Washington.

Caroline Hepker (0:24)

I'm Caroline Hepker in London, where we're looking at Germany's pitch to investors at a key summit in Berlin.

Doug Krizner (0:31)

I'm Doug Krizner looking at the South Korean economy and the approaching rate decision from the Bank of Korea.

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 some key housing data in the US. On Tuesday, we get reports on new home projects getting started in September, plus a look at home sales that were still waiting to be closed in the month. For more on this and the overall outlook for the home building sector, we want to bring in Drew Redding. He's US home building analyst for Bloomberg Intelligence. Always great to speak with you, Drew. Of course, we've talked many times before about how not so great this housing environment's been with prices and mortgage rates still elevated. So what are we expecting from this latest data for September?

Drew Redding (1:39)

Yeah, so the market has gotten increasingly challenging through the summer and into the early fall. Looking ahead to the pending home sales data, the consensus is looking for about a 1% sequential increase. But I think the risk is certainly skewed to the downside. We've got some high-frequency data for Redfin that shows that pending home sales were actually down 4% sequentially last month, which is the lowest level since 2014, excluding the pandemic. We've got mortgage rates around 7.5% and consumer confidence, particularly as it relates towards housing, continues to deteriorate. More deals are falling through. We actually had about 15% of transactions being canceled, which is due in part to the sticker shock that consumers are seeing, but also buyers having more leverage with greater inventory and a slower sales environment.

The challenges across the market are pretty broad-based. There's really no market or segment that's entirely insulated from these pressures. If you look across the top 50 US housing markets, pending sales are down across all of them.

With rate higher, there's certainly a lot of pressure on the consumer.

Nathan Hager (2:51)

Of course, we did see, I guess, a surprise increase in existing home sales this past week. I guess these numbers that came out before we really saw this surge in mortgage rates in recent weeks. Does that change how the outlook could come out based on these September numbers?

Drew Redding (3:13)

It's important to keep in mind when you're looking at existing home sales, those are closed transactions. What's really deals that were signed 30 to 60 days ago, which don't necessarily reflect the current market environment. Just looking at them in isolation is a little bit of a lagged view at the market. Some of the more high-frequency data we looked at, like depending home sales we just discussed. We've also got data on mortgage purchase applications which continue to soften particularly in the new home market. When you look at the Builder Application Survey, which looks at the captive financing arm of the largest builders, sales are down about 8% from last year.

So I think these are the more high-frequency indicators that reflect the current reality in the market, and we are seeing a softening of demand. Yeah.

Nathan Hager (4:01)

You got to wonder whether there's really an incentive for builders to build right now given the headwinds that we've talked about for all this time. Do you see any incentive right now?

Drew Redding (4:12)

That's a great question, and we'll get housing starts data next week as well. We think that this week, the demand environment is going to influence how we see the builders behave. And I think we'll continue to be reflected in single-family starts.

As we've discussed in the past, builders have kind of shifted their strategy over the last year or so to focus on matching production with sales in order to not add more supply into the market. And at the same time, you still have an elevated supply of completed new home inventory. So the focus has really been on drawing down existing inventory, which, as we've said, typically requires a greater degree of incentives before putting new production in the ground. So to your point, there's really not a whole lot of incentive with demand being as weak as it is to continue to put new product in the market.