Single family residential construction by KB Home is shown under construction on June 3, 2021 in the community of Valley Center, California. Rising mortgage rates and entangled supply chains are raising housing costs and shutting out some first-time buyers, a survey showed on Monday. (Mike Blake, Reuters)
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WASHINGTON — Confidence among U.S. single-family homebuilders fell to a seven-month low in April as rising mortgage rates and entangled supply chains pushed up housing costs and shut out some first-time buyers, a survey showed on Monday.
The housing market is in the spotlight as the Federal Reserve takes an aggressive monetary stance in the fight against sky-high inflation, pushing the 30-year fixed-rate mortgage rate above 5% for the first time in over a decade.
But with the housing stock at record lows, the hit from rising borrowing costs could be modest.
“The extreme supply-demand imbalance in today’s housing market is likely to dampen the impact of higher interest rates on activity,” said Ronnie Walker, an economist at Goldman Sachs.
The National Association of Home Builders/Wells Fargo housing market index fell two points this month to 77. The fourth straight monthly decline pushed the index to its lowest level since last September. A score above 50 indicates that more builders view conditions as good rather than bad.
Housing sentiment in the Midwest fell to its lowest level in almost two years. It also fell in the west but rose in the northeast and rose in the densely populated south.
Bottlenecks and the high cost of building materials such as framing timber make it difficult for builders to ramp up production.
The backlog of homes approved for construction but not yet started reached an all-time high in February, government sources said. Housing and housing permits may have eased in March, a Reuters poll of economists predicted. The March housing starts report is due to be released on Tuesday.
“Policymakers must take proactive steps to address supply chain issues that will reduce development costs, curb home price increases and allow homebuilders to increase production,” NAHB Chairman Jerry Konter said in a statement.
The Fed raised interest rates by 25 basis points in March, the first hike in more than three years. Economists expect the US Federal Reserve to hike rates by 50 basis points next month and soon start trimming its investment portfolio.
Reduced affordability
The 30-year fixed-rate mortgage averaged 5.0% for the week ended April 14, the highest since February 2011, up from 4.72% the previous week, according to data from mortgage financing agency Freddie Mac.
More expensive building materials and higher mortgage rates are increasing the cost of buying a home and making home buying less affordable, especially for low-income groups and first-time home buyers.
At the current mortgage rate, economists estimate that consumers taking out a $300,000 home loan would pay $263 more per month than if they set the loan rate earlier this year.
Annual house prices continue to show double-digit growth. Consumers expected house prices and rents to rise sharply this year, a separate New York Fed survey showed on Tuesday.
Renters said they see just a 43.3% chance of ever owning a home, down from 51.6% in 2021 and the lowest since the survey began in 2014.
“Rising mortgage rates and rising prices in recent years will make affordability worse, but pent-up consumer demand will keep home price growth strong,” said Abbey Omodunbi, senior economist at PNC Financial in Pittsburgh, Pennsylvania.
Goldman Sachs estimates that legacy home sales will decline about 6.0% this year from the fourth quarter of 2021 to an annualized pace of 5.8 million units. Home price inflation is also expected to remain strong this year.
“While higher mortgage rates will help slow home price growth by reducing supply-demand imbalances, our model suggests that the current tightness in the housing market and the rapid pace of recent home price growth is just over 10% in the fourth quarter /fourth quarter, house price growth this year,” Goldman Sachs’ Walker said.
“We expect home price growth to slow significantly beyond this year. Our model points to a low-single-digit pace of home price growth through mid-2023, a pace we previously did not expect until 2024.”
The NAHB survey’s Current Selling Conditions gauge fell to a seven-month low of 85 from 87 in March. But the gauge for sales expectations over the next six months rose three points to 73. The component that measures traffic from potential buyers went up down six points to an eight-month low of 60.
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