Homebuilders say US is in ‘housing recession’ as sentiment turns negative

Homebuilders say US is in ‘housing recession’ as sentiment turns negative

A worker drills plywood at a single family home under construction in Lehi, Utah on Friday, January 7, 2022.

George Frey | Bloomberg | Getty Images

Builder sentiment in the single family home market turned negative in August as builders and buyers grappled with higher costs.

The National Association of Home Builders/Wells Fargo housing market index fell 6 points this month to 49, the eighth straight monthly decline. Anything over 50 is considered positive. The index has not been in negative territory since a very brief dip at the start of the Covid pandemic. Before that, it hadn’t been negative since June 2014.

“Tighter monetary policy from the Federal Reserve and persistently elevated construction costs have led to a real estate recession,” said NAHB chief economist Robert Dietz.

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Of the three components of the index, current selling conditions fell 7 points to 57, sell expectations in the next six months fell 2 points to 47 and buyer traffic fell 5 points to 32.

Despite higher land, labor and material costs, about one in five home builders in August reported price cuts over the past month to increase sales or limit cancellations. The reported average drop was 5%.

The biggest hurdle for buyers right now is affordability. Home prices have risen since the pandemic began, and the average interest rate on the 30-year fixed-rate mortgage, which hit historic lows during the first part of the pandemic, is almost double what it was at the start of this year. Home price growth has slowed somewhat in recent weeks, while mortgage rates have fallen from their peaks.

“Total single-family housing will decline in 2022, the first such decline since 2011. However, as signs mount that inflation is nearing its peak, long-term interest rates have stabilised, which will provide some stability for the demand side of the market in the coming months,” said Dietz.

Regionally, builder confidence fell 9 points in the Northeast to 56 and in the Midwest 3 points to 49. In the South it fell 7 points to 63 and in the West, where home prices are hottest, it fell 11 points to 51.