New home construction rates are often viewed as a leading indicator of flatbed truck demand. Now that the country is in the midst of a housing market correction, we foresee potentially far-reaching implications for those in the freight industry who support housing.
New housing dropped once again last month; it is now at the lowest point in over two years. In addition, heightened mortgage rates are discouraging builders-reducing the possibility of a recovery. Further, due to COVID, problems in the supply chain have also affected the housing industry.
The Federal Reserve’s decision to increase interest rates has lessened the demand for new mortgages. According to Forbes, these rate hikes have led to an average increase of $800 for monthly mortgage payments. Demand has been greatly reduced, with the sales of new homes dropping by almost 30% in 2022.
The chart below, from Freddie Mac (a government agency), demonstrates the recent spike in mortgage rates. The chart illustrates that in the last ten years mortgage rates have not risen to above 6%-until now.
What does the housing market recession mean for those in the freight industry? If a company brokers or handles directly loads that transport housing materials, and if there is less of a demand for these materials, less revenue will be generated from these products.
As seen in the chart above from DAT analytics, the flatbed load to truck ratio has fallen to its lowest level since the beginning of the pandemic. In fact, the ratio of 12 loads per truck in October 2022 is 1/4th of what it was in October 2021 – 48 loads per truck. This softening of demand means that spot rates are falling, as can be seen in the chart below.
The lack of demand for new housing shows no signs of stopping any time soon. On November 18th, the National Association of Realtors revealed that home sales have dropped for nine months straight. Sales have dropped 5.9% since September and over 28% from last November. The median sales price for a home increased to $379,100, a rate that is 6.6% higher than last year’s.
Without a robust housing market, the demand for industries connected to housing will be profoundly affected. Only time will tell when the housing market rebounds.
