US enters ‘housing recession’ as mortgage rates and construction costs rise

The U.S. housing market has plunged into a full-scale recession as tighter economic policy and soaring spending weigh on homebuilders.

Builder confidence has fallen for eight consecutive months, marking its worst period since the housing market implosed in 2007 amid the Great Recession, data showed Monday.

The National Association of Home Builders / Wells Fargo Housing market index fell 6 points to 49 in August, falling below its breakeven point of 50 for the first time since May 2020.

“Tightening monetary policy from the Federal Reserve and persistently high construction costs have caused a housing slump,” said NAHB chief economist Robert Dietz.

Demand in the once-booming housing market has slowed significantly in recent months, with soaring mortgage rates and high purchase prices excluding many potential buyers.

Mortgage rates soared in response to the Federal Reserve’s decision to raise interest rates to fight inflation. The average 30-year fixed mortgage rate has almost doubled since January.

The affordability crisis has hampered prospects for homebuilders who were already facing abnormally high expenses for building materials and labor.

house under construction
Soaring home prices and mortgage rates have hampered affordability.
Bloomberg via Getty Images

“Continued growth in construction costs and high mortgage rates continue to weaken market sentiment for builders of single-family homes,” said NAHB President Jerry Konter, a builder and developer from Savannah, Georgia.

The survey found that more consumers are “sitting on the sidelines” due to the high cost of buying a home in what is a “worrying sign” for the market, Konter added. August shopper traffic hit its lowest point since April 2014, excluding the COVID-19 pandemic.

The latest NAHB findings also indicated that home prices are falling, with 19% of homebuilders who responded to the survey saying they had cut prices since July to encourage sales or protect against cancellations. These listings had a median price reduction of 5% from their original listing price.

Dietz acknowledged that market conditions could improve if inflation eases in the coming months.

house under construction
Home builders face high construction and labor costs.
Joe DeMaria
House for sale
Housing market conditions are expected to improve with lower inflation.
Newsday via Getty Images

“However, as signs are mounting that the inflation rate is near its peak, long-term interest rates have stabilized, which will provide some stability on the demand side of the market in the coming months. coming up,” Dietz said.

As The Post reported earlier this month, the median cost of an existing single-family home jumped 14.2% year-over-year to $413,500, according to the National Association of Realtors. The group noted that the affordability of single-family homes “dropped significantly” during the second quarter.

Last month, Ian Shepherdson, chief economist at Pantheon Macroeconomics, said prices dive “substantially” on the request for “crater”.

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