America's housing market is raising a 'large red flag' for the economy
- Friday's gross domestic product (GDP) report showed that residential investment, which includes construction and brokers' fees, fell for a third quarter out of four.
- It was another confirmation that the US housing market is in a slowdown.
- Sales of luxury and affordable housing have been declining for months.
- There's plenty of demand for buying houses, but it's getting harder to do so successfully in America.
The US housing market is slowing down.
However, it had an ugly detail about the housing market that added to evidence of a slump: residential investment, which includes construction and brokers' fees, shrank in Q2 for a third quarter out of four.
Add this to the worst housing affordability in nearly a decade and rising mortgage rates, and you have the recipe for a slowdown.
For Lindsey Piegza, chief economist for Stifel, the housing market "raises a large red flag" about economic growth in the second half of the year. She added that home sales help drive other parts of the economy, including consumer confidence and the pace of construction.
"It's very hard to escape the conclusion that the market has peaked for this cycle, given the rise in mortgage rates since last fall and the gradual tightening of lending standards," Ian Shepherdson, the chief economist at Pantheon Macroeconomics, said in a recent note.
RELATED: Take a look at the states residents are fleeing to avoid high tax rates:
Buyer fatigue is building, even though a strong jobs market and the maturing of millennials means there's plenty of demand for houses.
Evidence of this fatigue came last week in several sales reports.
Existing-home sales, which make up about 90% of the market, fell for a third straight month in June to an annual pace of 5.38 million units, according to the National Association of Realtors. And, new residential construction, or housing starts, softened in June to a 1.17 million-unit annual rate, according to the Census Bureau. In March, starts were at a 1.33 million annual rate.
Economists often caution against drawing broad conclusions from monthly housing data because they're volatile and often revised.
But for a number of months now, the trend of many key indicators has been downwards.
"We have officially arrived at a moment in housing nationwide," writes Jonathan Miller, CEO of real estate appraiser Miller Samuel, in a newsletter.
He said sales in both the high and low end of housing are slowing for different reasons. Luxury home sales in major markets including Manhattan, Los Angeles, and the Hamptons have cooled amid uncertainty about the impact of the new tax law.
At the cheaper end, the market has "crossed an affordability threshold" after many years of rising prices, low inventory, slow wage growth, and now, rising mortgage rates, Samuel said.
What these four ingredients in this recipe for a housing slowdown are not telling us, however, is that Americans don't see housing as a good investment.
But they're showing it's getting harder to buy a home, and fewer Americans are succeeding at it.
More from Business Insider:
There may be a simple way to profit if one of Wall Street's most feared recession signals is triggered soon
MORGAN STANLEY: Here are the 7 tech companies most likely to get acquired in the next 12 months
GOLDMAN SACHS: Big-money investors are dominating the market with the help of 10 stocks — here's the list and how they can continue crushing it
UBS lays out how a $6.3 trillion market could be sowing the seeds of the next financial crisis, and what to do to protect yourself
BANK OF AMERICA: Global markets are echoing the 1998 financial crisis, and there's evidence for another crash
NOW WATCH: A diehard Mac user switches to PC