After many months of skyrocketing costs, most U.S. construction industry agrees that a “housing recession” has set in.
As rising prices continue to burden builders and consumers, builder confidence in the market for single-family homes declined in August.
This is the eighth consecutive monthly loss for the National Association of Home Builders/Wells Fargo Housing Market Index, which fell 6 points to 49 this month. Statistically, a number greater than fifty indicates growth. Since a sharp decline during the outbreak of the Covid epidemic, the index has not been red. Previously, it has been positive since June 2014.
According to NAHB Chief Economist Robert Dietz, tighter monetary policy from the Federal Reserve and consistently rising building costs have brought on a housing recession.
After the Federal Reserve increased interest rates by 75 basis points at the end of last month, the current attitude index arrived when it is already challenging to purchase a house and is expected to grow much more.
The present sales conditions component declined 7 points to 57; the sales expectations component fell 2 points to 47, and the buyer traffic component down 5 points to 32.
About one-fifth of builders in August said they lowered pricing in the previous month to boost sales or prevent cancellations, despite increasing land, labor, and supplies expenses. Reports generally indicated a decline of 5%.
Buyers are now facing the most formidable challenge of all: price. Since the beginning of the epidemic, home prices have increased, and the average rate on a 30-year fixed mortgage, which had been at record lows then, is now about double what it was at the beginning of the year. Mortgage rates have dropped from historic highs as home price growth has slowed somewhat in recent weeks.
What is a housing recession?
As Dietz pointed out, the term “housing recession” lacks a concrete meaning. He noted that several critical measures suggest difficulties that might lead to a home market downturn.
Dietz notes that the index for single-family building permits dropped below 50 in the first half of 2022, a 4% decrease from the same period in 2021 and that attitudes among housebuilders have been declining for the last eight months.
Will homebuilders obtain relief shortly?
It is unlikely, Dietz told USA TODAY.
As mortgage rates rise, he continued, “we’re in a cyclical fall.” “We need to increase our housing production, but the current level of mortgage rates is likely to cause a temporary decline in the market for new homes.
Having to develop our way out of a more significant structural deficit is inevitable.”
North Eastern builder sentiment decreased 9 points to 56 in the three-month moving average, while Midwest builder sentiment declined 3 points to 49. The housing market mood index dropped 7 points to 63 in the South and 11 points to 51 in the West, where house prices are the highest in the United States.