Builder confidence in the market for newly built single-family homes dropped eight points in October to 38—half the level it was just six months ago—according to the National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index (HMI) released today.
This is the lowest confidence reading since August 2012, except for the onset of the pandemic in the spring of 2020, and means the housing sector has been hit hardest by higher interest rates, which have reached nosebleed territory for prospective homebuyers.
“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. 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 many prospective buyers.”
Existing-home sales look no better. The National Association of Realtors reports year-over-year, sales faded by 19.9% (5.99 million in August 2021).
"The housing sector is the most sensitive to and experiences the most immediate impacts from the Federal Reserve's interest rate policy changes," said NAR Chief Economist Lawrence Yun. "The softness in home sales reflects this year's escalating mortgage rates. Nonetheless, homeowners are doing well with near nonexistent distressed property sales and home prices still higher than a year ago."
This is small comfort to a housing market already in recession, said economist Diane Swonk.
“Mortgage demand plummets 86% from year ago as refis continue to evaporate along with new mortgage demand. The data adds to the collapse we saw in home builder sentiment earlier this week and marks a 25 year low. The housing market recession will get demonstrably worse,” she said in a recent Tweet @DianeSwonk.
The real problem hurting housing is inflation that has spiked higher interest rates, something that President Biden and Democrats have little control over. Worldwide food and energy prices first began to surge with Russia’s invasion of the Ukraine.
The UK just reported its consumer-price index increased 10.1 percent in September year-on-year, up from 9.9 percent in August, according to data from the U.K.’s Office for National Statistics published Wednesday.
The rise in inflation was driven by higher food and non-alcoholic beverage prices, which increased by 14.5 percent on year compared with 13.1 percent in August. Meanwhile, the continued fall in the price of motor fuels made the largest downward contribution, the ONS said.
The UK has one of the better inflation numbers. Turkey, Russian, Brazil and many other countries hit hard by the supply shortages still have double-digit inflation rates.
So, let’s put the blame for high inflation where it belongs—China’s troubles with COVID lockdowns, a war, and lingering hangover from the pandemic, ok?
Harlan Green © 2022
Follow Harlan Green on Twitter: https://twitter.com/HarlanGreen
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