Homebuilder sentiment plummets as mortgage rates curb buying activity

mortgage interest rate According to Freddie Mac, the 30-year fixed rate is gradually approaching the 7% threshold and rose slightly this week. High mortgage rates continue to have a visible impact on home buying affordability and the overall housing market.

More buyers are turning to variable rate mortgages as the fixed rate of mortgages strains purchasing budgets. Mortgage Bankers AssociationThe share of ARM borrowers increased again to 12.8%, pushing demand for this type of mortgage to its highest level since 2008. On the other hand, the 5/1 ARM average rate has fallen slightly over the past week. Current mortgage rates as of October 20 are:

  • Fixed for 30 years: 6.94% at 0.9 points (Up from 6.92% a week ago, up from 3.09% a year ago).
  • 15-year fixed: 6.23% at 1.1 points (Up from 6.09% a week ago, up from 2.33% a year ago).
  • 5/1 year adjustable: 5.71% at 0.4 points (Down from 5.81% a week ago, up from 2.54% a year ago).

Erica Giovanetti

“Mortgage rates have slowed their upward trajectory this week. 30-year fixed-rate mortgages remain at 7%, hurting the housing market in the form of lower demand. fell in half just six months ago, and construction continues to slow, especially single-family home construction.”

– Freddie Mac Chief Economist Sam Cater in a statement on October 20

In his analysis, Khater refers to the October Housing Market Sentiment Survey. National Association of Home BuildersThis marks the 10th straight month of declines in builder confidence and the lowest level in a decade.

As homebuilder sentiment sours, housing production It tends to slow down in the short term. NAHB says 2022 will be the first year he sees a decline in single-family home construction since 2011. Confidence and building activity could also continue to decline into his 2023 as the Federal Reserve struggles to keep sharp inflation under control and plans for continued aggressive rate hikes. There is a nature.

Amid a grim outlook for domestic home builders, NAHB Chairman Jerry Conter is calling on policymakers to take action. “This situation is unhealthy and unsustainable,” adds Konter.

Konter didn’t elaborate on what should be done to address the housing affordability crisis, but policymakers have a few tools at their disposal that can improve the situation.a NAHB survey in March 82% of Americans believe that legislators should consider housing affordability a priority. Specifically, respondents want policymakers to:

  • 70% support government spending to improve the country’s existing housing stock.
  • 66% want the federal government to provide incentives for private developers to build affordable housing.
  • 59% want local governments to ease zoning regulations that prevent the construction of affordable housing.

Still, it could take years to bring these long-term solutions affordable housing It is within reach of many first- or first-generation homebuyers battling mortgage rates near 7% in the short term. And with low confidence in home builders hurting single-family home construction, the housing supply could become even more dire in the future.

Indicator of the Week: The Future of Home Inventory

Negative sentiment in the housing market by property developers already seems to be affecting new housing construction. Statistics show that single-family housing starts fell 4.7% month-on-month in September. US Census Bureau.

Lawrence Yun, chief economist at the National Association of Realtors, said forecasts for existing home inventory don’t do too well. economic outlookFor new listings of homes for sale, “Golden Handcuffs” That means homeowners don’t want to sell and give up mortgage rates below 3%.

“Given the slowdown in home sales and recent private sector data showing softer rental contracts for new apartments, it makes sense for home builders to be cautious,” Yoon said. . “Nevertheless, the latest monthly annual rate of 1.44 million (housing starts) is below the historical average of 1.5 million needed to accommodate the growing population.”

yun add it housing inventory Although it has improved slightly in recent months, it remains close to historical lows and well below pre-pandemic levels. He also says homeowner vacancy is at his 0.8%, the lowest point in 40 years.

But what about home builders? stop building new homes At a time when the inventory of homes for sale is still very low? Looking ahead to the not-too-distant future, delays in housing starts may only exacerbate the existing supply crisis.

“After inflation subsides over the next few years, we may again encounter severe housing shortages as mortgage rates fall,” says Yoon.

Without the intervention of federal policymakers, this bleak prediction could become a reality.

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