Home construction companies continue to be stuck in a deep rut, as confidence in the market falls once again this month.
Rising mortgage rates and building material shortages have made new housing less affordable for most of the year, pushing away first-time buyers.
“This situation is unhealthy and unsustainable,” said NAHB Chairman Jerry Konter in a press statement.
“Policymakers must address this worsening housing affordability crisis.”
Homebuilder sentiment on the index was strong, at 90 only a year ago. A reading above 50 indicates a healthy home-building market. Economists were expecting a softer decline, to 44, this month, after it hit 46 in September.
With the exception of the early part of the pandemic in 2020, when the country was on lockdown, rates now are at their lowest level since August 2012.
All three primary measures on the index were down sharply, with current sales conditions dropping nine points, while the metric for sales expectations over the next two quarters fell by 11 points. The measure for prospective homebuyer traffic dropped six points, to 25.
Interest Rate Hikes and the Housing Market
The housing market has suffered heavily due to the Federal Reserve’s aggressive interest -ate hike policy, which is targeted at the worst inflation levels since 1981.The central bank has lifted its benchmark policy rate from near zero to a range of 3.00-3.25 percent since March. The federal funds rate is now expected to be at the 4 percent level by the end of the year, as, currently, inflation shows no sign of abating.
The Fed is unlikely to pause its rate hikes until next year, with inflation currently at an 8.2 percent annual pace.
This has caused the popular 30-year fixed-rate loan to rise to nearly 7 percent, its highest level since 2006, causing sales of new and existing homes to tumble roughly 25 percent since January.
Further, home construction companies expect a decline in single-family starts this year, according to the NAHB.
“This will be the first year since 2011 to see a decline for single-family starts,” said NAHB Chief Economist Robert Dietz.
“And given expectations for ongoing elevated interest rates due to actions by the Federal Reserve, 2023 is forecasted to see additional single-family building declines as the housing contraction continues.”
The federal government is expected to publish the September figures for the number of new home construction and the number of permits for new home-building projects on Oct. 19.
Both categories have faced steep losses this year and are estimated to have fallen even more last month.
“Mortgage demand plummets 86 percent from year ago, as refinancings continue to evaporate along with new mortgage demand. The data add to the collapse we saw in homebuilder sentiment earlier this week and marks a 25-year low. The housing market recession will get demonstrably worse,” noted Diane Swonk, chief economist at KPMG U.S., in a tweet.The sign that the American housing market is collapsing is, according to many economists, a dismal sign for the future of the U.S. economy.
