Accelerating interest rates are only adding to already expensive new and existing home prices.
Rising Interest Rates Taking Toll on Homebuilders
Homebuilder confidence levels dropped an additional two points to 77 in April, according to the National Association of Home Builders/Wells Fargo Housing Market Index. Compare this reading of 77 in April 2022 to 83 in April 2021 and you get the idea.
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This index has three components:
- Current sales conditions – dropped to 85 in April from 87 in March
- Buyer traffic – down from 66 to 60 points
- Sales expectations in next 6 months – increased 3 points to 73 after dropping 10 points in March
Mortgage Rate Jumps & Supply Chain Disruptions
The NAHB Chairman Jerry Konter said, “Despite low existing inventory, builders report sales traffic and current sales conditions have declined to their lowest points since last summer as a sharp jump in mortgage rates and persistent supply chain disruptions continue to unsettle the housing market.”
According to Mortgage Daily News, the average rate of the popular 30-year fixed-rate mortgage jumped from 3.90% at the beginning of March to 5.15% currently. Such elevated rates only make high prices for both existing and new homes more expensive.
Even in February, the median price of a new home had increased more than +10% y/y.
Robert Dietz, Chief Economist with the NAHB, said, “The housing market faces an inflection point as an unexpectantly quick rise in interest rates, rising home prices and escalating material costs have significantly decreased housing affordability conditions, particularly in the crucial entry-level market.”
Regional Differences in Homebuilder Sentiment
On a three-month moving average, regional homebuilder sentiment looked like this:
- Northeast – +1 to 72
- Midwest – -3 to 69
- South -2 to 82
- West -1 to 89
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