Homebuilder sentiment drops for fourth straight month, as rising rates push housing to ‘an inflection point’

Contractor uses a Hammer to build a townhouse in the PulteGroup Metro residential development, Milpitas.
David Paul Morris | Bloomberg | Getty Images

Homebuilders across the country are seeing sharply rising mortgage rates. This is causing new construction to become more expensive. 

Builder confidence in the market for new single-family homes fell 2 points to 77 in April, according to the National Association of Home Builders/Wells Fargo Housing Market Index. Positive sentiment is defined as any reading that exceeds 50. However, this reading represents the fourth consecutive month of declining index readings, which was 83 in April 2021.

Current sales conditions dropped 2 points to 85 among the three index components. After a 10 point drop in March, buyer traffic fell 6 points to 60. Sales expectations for the following six months rose 3 points to 72.

According to Jerry Konter (a Savannah-based builder/developer), “Despite the low inventory available, builders report that sales traffic has declined and current conditions are at their lowest point since last summer due to a sharp jump mortgage rates and persistent supply chains disruptions continuing to disrupt the housing market.”

At the start of March, the average 30-year fixed rate was around 3.90%. It is currently at 5.15% according to Mortgage News. It is the highest rate recorded in over a decade. This rate follows loosely the U.S. Treasury 10-year Treasury yield, which is on the rise but also affected by the Federal Reserve’s withdrawal from the mortgage-backed bonds market.

High prices of both existing and new homes are being exacerbated by high mortgage rates. Median price for newly constructed homes in February rose by more than 10% compared to the previous year.

Robert Dietz (NAHB Chief Economist) stated, “The housing market has an inflection point because an unexpectedly rapid rise in interest rate, rising home values and escalating materials costs have significantly reduced housing affordability conditions in particular in the crucial entry level market.”

The Northeast saw a 1 point increase in builder sentiment on a 3 month moving average to reach 72. It fell by 3 points in the Midwest to 69; it dropped 2 points in the South to 82, and it declined 1 point in the West to 89.

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