Homebuilder sentiment falls sharply in November as higher mortgage rates bite
Confidence among US homebuilders plunges to lowest level since 2012
CapitalistPig hedge fund manager Jonathan Hoenig discusses housing prices tumbling and high mortgages rates as the Fed considers raising interest rates again.
Confidence among builders in the U.S. housing market tumbled more than expected in November to the lowest level in a decade as painfully high inflation and rising borrowing costs forced potential buyers to pull back.
The National Association of Home Builders/Wells Fargo Housing Market Index, which measures the pulse of the single-family housing market, fell for the eleventh consecutive month to 33, marking the worst stretch for the housing market since the survey launched in 1985.
Any reading above 50 is considered positive; prior to this year, the gauge has not entered negative territory since 2012, excluding a brief — but steep — drop in May 2020.
The index has fallen to half of what it was just six months ago, when it stood at 76. It peaked at a 35-year high of 90 in November 2020, buoyed by record-low interest rates at the same time that American homebuyers — flush with cash and eager for more space during the pandemic — started flocking to the suburbs.
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In this aerial view, completed and under construction new homes at a site in Trappe, Maryland, on October 28, 2022. ((Photo by JIM WATSON/AFP via Getty Images) / Getty Images)
November's reading was below the median expectations among economists for a decline to 36 from last month's recording of 38.
"Higher interest rates have significantly weakened demand for new homes as buyer traffic is becoming increasingly scarce," said NAHB Chairman Jerry Konter, a homebuilder and developer from Savannah, Georgia.
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The survey's measure of current sales conditions slid 6 points to 39, while its gauge of sales expectations over the next six months plunged 4 points to 31. The component looking at the traffic of prospective buyers slumped five points to 20.
"Even as home prices moderate, building costs, labor and materials − particularly for concrete − have yet to follow," said Robert Dietz, NAHB’s chief economist.
A "For Sale" outside a house in Hercules, California, US, on Tuesday, May 31, 2022. (Photographer: David Paul Morris/Bloomberg via Getty Images / Getty Images)
The interest rate-sensitive housing market has started to cool noticeably in recent months as the Federal Reserve moves to tighten policy at the fastest pace in three decades. Policymakers already approved six straight interest rate hikes, including four 75-basis-point increases in June, July, September and November, and have shown no sign of pausing as they try to crush stubbornly high inflation.
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The average rate for a 30-year fixed mortgage climbed to 7.08% for the week ending Nov. 10, according to recent data from mortgage lender Freddie Mac. That is significantly higher than just one year ago when rates stood at 2.98%.