Sentiment among homebuilders plummeted for the tenth consecutive month as traffic for prospective buyers neared the lowest level in a decade, according to a report from the National Association of Home Builders released on Tuesday.
The organization’s Housing Market Index dropped to 38 in October, meaning that the score has halved over the past six months. Current sales conditions fell to 45, sales expectations fell to 35, and prospective buyer traffic fell to 25, with market conditions in the western portion of the United States appearing most depressed.
“High mortgage rates approaching 7% have significantly weakened demand, particularly for first-time and first-generation prospective home buyers,” National Association of Home Builders Chairman Jerry Konter, a home builder and developer from Savannah, Georgia, said in a press release. “This situation is unhealthy and unsustainable. Policymakers must address this worsening housing affordability crisis.”
The 30-year fixed mortgage rate remained below 3% for much of the past two years, according to data from government-backed mortgage company Freddie Mac. Since the beginning of the year, however, the rate has surged from just over 3% and reached 6.9% as of last week, marking a jump of nearly 1% in less than one month.
Interest rates across the economy have increased as the Federal Reserve introduces a contractionary monetary policy regime. The central bank raised the target federal funds rate by 0.75%, a move which followed two identical hikes in June and July, in an attempt to relieve elevated inflationary pressures.
Analysts are worried that the high mortgage rates will further erode housing affordability. “While some analysts have suggested that the housing market is now more ‘balanced,’ the truth is that the homeownership rate will decline in the quarters ahead as higher interest rates and ongoing elevated construction costs continue to price out a large number of prospective buyers,” National Association of Home Builders Chief Economist Robert Dietz remarked.
Shelter costs increased 6.9% between September 2021 and September 2022, according to recent data from the Bureau of Labor Statistics. While responding to the dismal inflation news last week, President Joe Biden insisted that the report “shows some progress in the fight against higher prices.”
Konter called the claim “truly disingenuous” and noted that housing expenses account for nearly one-third of the total rise in price levels. “If President Biden is truly serious about fighting inflation, he needs to address the nation’s growing housing affordability crisis,” he said last week. “Acknowledging and getting serious about tackling the nation’s housing affordability crisis will go a long way to reining in stubbornly high inflation and reduce the economic pain of millions of American families,” even though “prices are still too high.”
Among other actions, Konter suggested that the White House could end regulations that “artificially increase the cost of building apartments and new homes,” encourage vocational job training programs, and suspend tariffs on Canadian lumber imports that “act as a tax.”
In the second quarter of 2022, the median sale price of a home in the United States was $440,300, according to data from the Department of Housing and Urban Development, marking a 36% rise from $322,600 in the second quarter of 2020.