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Market Daily

September witnesses new home building retreat as mortgage rates intimidate buyers

Mortgage rates continue to scourge the market as new home building retreated
Mortgage rates continue to scourge the market as new home building retreated

Image source: Financial Conduct Authority

In recent months, rising mortgage rates made it difficult for potential homebuyers, and home building pulled back in September.

Housing starts

According to the US Census Bureau, the number of housing starts in September decreased by 8.1% from August and 7.7% in 2021.

After a sharp decline this spring, the housing starts remained steady until July.

The rise in mortgage rates has left potential buyers on the sidelines.

However, the number of housing starts picked up slightly in August as mortgage interest rates fell quickly.

Since then, the interest rate has risen to nearly 7%, the highest level in over 20 years.

Meanwhile, September building permits were up 1.4% from August, down 3.2% year-over-year.

Home builder confidence

A survey released Monday found home builders’ confidence declined for the tenth straight month.

High mortgage rates, rising house prices, and continuing supply chain problems have made it difficult for potential home buyers.

The National Association of Home Builders/Wells Fargo Housing Market Index measures market conditions.

It also looks at current sales, buyer traffic, and sales prospects for the next six months.

According to home builders, traffic from potential new buyers has dropped to its lowest point: the last was over ten years ago, in August 2012.

NAHB Chairman Jerry Konter said:

“High mortgage rates approaching 7% have significantly weakened demand, particularly for first-time and first-generation prospective home buyers.”

“This situation is unhealthy and unsustainable.”

Mortgage rates

The Federal Reserve steadily raised interest rates throughout the year in an attempt to curb inflation.

This effort has enabled mortgage rates to more than double since the start of the year.

Robert Dietz, NAHB Chief Economist, said:

“This will be the first year since 2011 to see a decline for single-family starts.”

“And given expectations for ongoing elevated interest rates due to actions by the Federal Reserve, 2023 is forecasted to see additional single-family building declines as the housing contraction continues.”

According to Dietz, some analysts believe the housing market is more balanced, but he argued that homeownership would decline in the coming months.

“Higher interest rates and ongoing elevated construction costs continue to price out a large number of prospective buyers,” he explained.

However, if mortgage rates fall in the coming years due to lower inflation, the US could again face a severe housing shortage.

Lawrence Yun, the chief economist of the National Association of Realtors, said:

“It is understandable for homebuilders to be cautious in light of slowing home sales and some recent data that indicates softening lease signings for new apartments.”

Yun added that home building is not keeping up with population growth.

Builders and the market

Kelly Mangold of RCLCO Real Estate Consulting said builders are doing their best to adjust to market conditions.

The adjustment aims to limit the risk of oversupply, potentially resulting in a stock market crash similar to the Great Recession.

“The housing market as a whole has been underbuilt for much of the past decade and a half, and there is still significant demand for housing overall,” she said.

Due to the high mortgage rates, it’s no surprise home builders are pulling out.

Navy Federal Credit Union corporate economist Robert Frick said there would be no card reversals by 2022.

“We’ll need to wait for 2023 and hope mortgage rates fall and home price increases cool down – with prices in some hot markets even falling slightly – before conditions swing in favor of homebuyers,” said Frick.


New home building retreated in September as rising mortgage rates scare off buyers

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