Jason Haber talks about the change in the housing market by saying that “The Claman Countdown” high interest rates are causing home buyers to abandon shopping.
Confidence among builders in the U.S. real estate market fell more than expected in July to the lowest level since the start of the COVID-19 pandemic, as scorching inflation and rising borrowing costs forced buyers to withdraw.
The National Home Builders Association / Wells Fargo Housing Market Index, which measures the pulse of the single-family housing market, fell for the seventh consecutive month to 55, the lowest level since May 2020. It is the second largest, a monthly drop in the 37-year history of the survey.
While any reading above 50 is still considered positive, the index has fallen considerably since just one year ago, when it stood at 80. It peaked at 35 in the 1990s in November 2020, driven by record interest rates low at the same time as American home buyers, with cash and wanting more space during the pandemic, began to flock to the suburbs.
“Production bottlenecks, rising housing construction costs and high inflation are causing many builders to halt construction because the cost of land, construction and financing exceeds the market value of the home, ”NAHB President Jerry Konter, a home builder and developer, said in a statement.
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A sale sign is in front of a house on Tuesday, October 6, 2020, in Westwood, Massachusetts. ((Photo AP / Steven Senne) / AP Newsroom)
The July reading was below average economists’ expectations for a drop to 65.
One of the components of the index that measures current single-family home sales sank to 64 from 76. The single-family sales expectation indicator for the next six months also fell to 50 from 61, while the Traffic index of potential buyers fell 11 points to 37 – deep in negative territory.
“The residential real estate market is in a phase of contraction, not necessarily in a recession,” said Jeffrey Roach, chief economist at LPL Financial. “But that depends on the duration of historic inflationary pressures for home builders due to high commodity prices and a tight labor market.”
The sign is in front of Freddie Mac’s headquarters in McLean, Virginia, USA, on Tuesday, October 1, 2019. (Photographer: Andrew Harrer / Bloomberg via Getty Images / Getty Images)
The drop was broad across the country, with a drop in builders ’confidence in the west by 12 points, followed by an 8-point drop in the south and a 6-point drop in the northeast. Confidence in the Midwest dropped 4 points.
The data comes as the Federal Reserve struggles to catch up with rampant inflation with a series of historic interest rate hikes that are gradually raising borrowing costs. The average rate on a 30-year fixed-rate mortgage rose to 5.51% during the week ending July 14, according to recent data from mortgage lender Freddie Mac.
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This is significantly higher than just a year ago, when rates stood at 2.88%.