‘Housing Recession’ Is Here as Homebuilder Sentiment Plunges: NAHB

Homebuilder confidence fell for the eighth straight month in August, with experts blaming elevated mortgage rates and construction expenses for the crisis.

According to data from the National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index (HMI), builder confidence for newly built single-family homes declined by six points, to 49, this month, the first time since May 2020 that the index has fallen below the 50 level, an Aug. 15 press release said.

NAHB Chief Economist Robert Dietz cited high construction costs and the tighter monetary policy adopted by the Federal Reserve for having created a “housing recession.”

“The total volume of single-family starts will post a decline in 2022, the first such decrease since 2011. However, as signs grow that the rate of inflation is near peaking, long-term interest rates have stabilized, which will provide some stability for the demand-side of the market in the coming months,” he said in the release.

NAHB Chairman Jerry Konter, a homebuilder and developer from Savannah, Ga., blamed the weakening market sentiment on elevated construction costs and mortgage rates. The August buyer traffic number came in at 32, which is the lowest level since April 2014, except for spring 2020, which was affected by the COVID-19 pandemic.

Around one in five homebuilders said they were lowering prices to limit cancellation or boost sales. The median price reduction was 5 percent among builders offering such discounts. The top reason builders cited for falling housing demand was mortgage rates, with 69 percent holding such a view.

High Mortgage Rates, Expensive Homes

Mortgage rates have been skyrocketing ever since President Joe Biden assumed power. Between Jan. 20, 2021, and Aug. 10, 2022, for example, the average 30-year fixed-rate mortgage rate has jumped, from 2.77 percent to 5.22 percent, data from Freddie Mac shows. Rates peaked at 5.81 percent in the week ended June 22.

Although mortgage interest rates are continuing to fluctuate, data suggest that the housing market is stabilizing as it transitions from a level of higher activity seen during the pandemic to a more balanced one, Freddie Mac stated,

“Declines in purchase demand continue to diminish while supply remains fairly tight across most markets. The consequence is that house prices likely will continue to rise, but at a slower pace for the rest of the summer,” it added.

In addition to elevated mortgage rates, higher home prices are also deterring customers. Existing single-family homes hit a median price of $413,500 nationally during the second quarter of 2022, up 14.2 percent from a year ago, according to the National Association of Realtors.

This is the first time that the median price of a single-family existing home has crossed the $400,000 level mark. In almost 53 markets, a family needed at least $100,000 to afford a home mortgage with a 10 percent downpayment, up from 27 markets in the first quarter.