Piper Sandler, Chief Investment Strategist Michael Kantrowitz discusses the health of the US economy and where the housing market is headed as the Fed continues to hike rates on “Mornings with Maria.”
Builders’ confidence in the U.S. housing market unexpectedly fell in December to a ten-year low as painfully high inflation and rising borrowing costs forced potential buyers to retreat .
The National Association of Home Builders/Wells Fargo Housing Market Index, which measures the pulse of the single-family housing market, fell for the twelfth straight month to 31, marking the worst stretch for the housing market since launch. of the survey in 1985.
Any reading above 50 is considered positive; Prior to this year, the gauge hadn’t entered negative territory since 2012, except for a brief – but sharp – dip in May 2020.
The index is down to half of what it was just six months ago, when it stood at 76. It peaked at a 35-year high of 90 in November 2020, backed by rates historically low interest at the same time as American buyers – running out of money and hungry for more space during the pandemic – began to flock to the suburbs.
INFLATION FALLS MORE THAN EXPECTED IN NOVEMBER TO 7.1%, BUT CONSUMER PRICES REMAIN HIGH
In this aerial view, new homes completed and under construction at a site in Trappe, Maryland, Oct. 15, 2019. 28, 2022. ((Photo by JIM WATSON/AFP via Getty Images) / Getty Images)
The December reading was below economists’ median expectations for an increase to 34 from last month’s record of 33.
“In this environment of high inflation and high mortgage rates, builders are struggling to keep homes affordable for homebuyers,” said NAHB President Jerry Konter, a builder and developer from Savannah, Georgia. “Our latest survey shows that 62% of builders use incentives to drive sales, including offering mortgage rate buyouts, paying buyer points and offering price reductions.”
INFLATION COULD REACH TWICE SOME PENSIONERS
The survey’s measure of current selling conditions slipped 3 points to 36, while its gauge of sales expectations over the next six months rose 4 points to 35. remained unchanged at 20.
A “for sale” in front of a home in Hercules, California on May 31, 2022. (Photographer: David Paul Morris/Bloomberg via Getty Images/Getty Images)
The interest rate sensitive housing market has begun to calm significantly in recent months as Federal Reserve measures to tighten policy at the fastest pace in three decades. Policymakers have already approved six consecutive interest rate hikes, including four 75 basis point increases in June, July, September and November, and have shown no sign of pausing as they try to crush inflation stubbornly high.
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The average rate for a 30-year fixed mortgage fell to 6.31% last week, according to recent data from mortgage lender Freddie Mac. While that’s significantly higher than just a year ago, when rates stood at 3.12%, it’s down from November’s peak of 7.08%.
With mortgage rates starting to stabilize, there could be an end in sight for the decimation of homebuilder sentiment, according to NAHB chief economist Robert Dietz.
“The silver lining of this HMI report is that this is the smallest decline in the index in the past six months, indicating that we may be approaching the bottom of the cycle for builder sentiment.” , Dietz said. “Mortgage rates have fallen from over 7% in recent weeks to around 6.3% today, and for the first time since April, builders have seen an increase in expectations for future sales.”
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