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US house starts slump 9.9% as rising mortgage rates crush recovery

Posted on 17 July 2013 with no comments from readers

US housing starts fell by 9.9 per cent to an annualized rate of 836,000 last month, a slump in new home building activity not expected by any of the economists polled by Bloomberg who have all been busy talking up a recovery.

Well it is simply not happening. Blame the rising cost of home loans, up 14 per cent for the average US mortgage over the past seven weeks. Mortgage applications have dived along with house builder stocks.

Building permits slump

Building permits applications slumped by 7.5 percent to a 911,000 annualized rate in June, compared to a median forecast of 1 million.

Once again economists have failed to spot a housing downturn that was quite clearly flagged up by a sharp rise in interest rates. Put the cost of something up and demand goes down. That’s economics 101.

Some blamed bad weather in June. Economists are perhaps also bad at weather forecasting. But actually the slump in housing was widely based and across the nation.

Work on apartment buildings dropped by a thumping 26 per cent to an annualized rate of 245,000, the lowest since August 2012. And all four regions saw housing starts fall last month, led by 12 per cent slumps in both the Northeast and the South.

The US economic recovery is clearly in trouble. Rising house prices and stock market prices have been the main drivers of rising consumer confidence and spending.

This is not a blip on the graph in a strong recovery. The anaemic recovery is behind us. In front is a wall of higher interest rates and a much tougher global economic environment.

Blind forecasters

Strange how no economist seems to see what is as plain as the nose on your face and written in the housing data today. ArabianMoney saw it months ago.

The move towards higher interest rates has been gathering speed in global financial markets for many months. It is not all about what Mr. Bernanke may or may not have said. Rates were going up long before his recent comments.

The benchmark 10-year US bond yield has risen from a low of 1.63 per cent on May 2 ending June at 2.49 per cent. That’s a 40 per cent change in two months. In the 1994 bond market crash the comparable move was 20 per cent.

Higher global interest rates are just not compatible with a real estate led recovery. Economics 101. Get ready for much higher volatility in global financial markets, something hardly any expert is predicting right now!

Posted on 17 July 2013 Categories: Banking & Finance, Bond Markets, Global Economics, Private Equity, US Stocks

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