The payment: The monthly confidence index for the National Association of Home Builders fell another two points from the previous month to 77 in April, the trade group said on Monday. The index remains at its lowest level since September.
Still, index scores above 50 suggest more builders believe conditions are good rather than bad. The last time the index fell below 50 was in April and May 2020 at the start of the COVID-19 pandemic.
What happened: The decline in the overall index was mainly caused by a decline in the underlying index, which measures builders’ views of potential buyers’ traffic. That reading fell six points to 60 over the past month, signaling its lowest level since July 2020. The current sales sentiment gauge also declined, albeit to a lesser extent.
The underlying index, which measures builders’ expectations for single-family home sales over the next six months, rebounded after falling 10 points in the previous month, rising to a level of 73.
The big picture: A separate poll by BTIG and HomeSphere found that 42% of homebuilders believe interest rates are negatively affecting their business, up from less than 22% in January. Still, the survey found that sales for small and medium-sized home builders rose in March, with most still raising prices.
The full impact of the surge in mortgage rates following the Federal Reserve’s action to combat high inflation remains to be seen.
In a research note, Goldman Sachs analysts noted that the real estate sector is “the most interest-rate-sensitive segment of the economy.” Still, the severe shortage of homes for sale relative to demand should cushion some of the impact of rising interest rates on the housing market, they said. In particular, they argued that this shouldn’t change much when it comes to new home construction, since builders don’t have to worry about the properties they’ve built going unsold.
Looking ahead: “The housing market is at an inflection point as faster-than-expected rises in interest rates, rising house prices and escalating material costs have significantly worsened housing affordability conditions, particularly in the crucial entry-level market,” said Robert Dietz, chief economist for the National Association of Home Builders , said in the report.
“The top two housing market releases this week — housing starts and existing home sales — are likely to show a slowdown in activity in March as 30-year mortgage rates climbed to 12-year highs,” said Sal Guatieri, senior economist at BMO Capital Markets said in a research report. “Not surprisingly, the impact of higher interest rates on the economy is felt first in the most interest-rate-sensitive area. It doesn’t help that rising house prices are also eroding affordability.”