US home builders cut prices as confidence drops for the seventh straight month.
As Builder’s Confidence in The Market Continues to Deteriorate More Are Cutting Home Prices
In September, the National Association of Home Builders/Wells Fargo Housing Market Index decreased 3 points to 46. Anything less than 50 is seen as detrimental.
With the exception of a brief decrease during the commencement of the coronavirus pandemic in 2020, this is the ninth consecutive month of reductions and the lowest level since May of 2014. In January of this year, the sentiment was at 83, when interest rates were roughly half of what they are now.
Indeed, builders blame rising interest rates for their poor performance. According to Mortgage News Daily, the 30-year fixed rate started the year at 3% and then began progressively climbing, reaching 6% for a few days in June. It subsequently dropped somewhat, almost reaching 5% in August, before climbing dramatically again, reaching over 6% this month. This made an already expensive property market even more unaffordable. Meanwhile, the Federal Reserve is poised to boost its benchmark rate again this week as inflation stays strong.
“Buyer traffic is weak in many markets as more consumers remain on the sidelines due to high mortgage rates and home prices that are putting a new home purchase out of financial reach for many households,” said NAHB Chairman Jerry Konter, a Savannah, Georgia-based homebuilder and developer.
Konter said that over a quarter of homebuilders reported reduced home prices, up from 19% in August.
Of the index’s three components: current sales circumstances dropped 3 points to 54, sales forecasts in the next six months down 1 point to 46, and buyer traffic dropped 1 point to 31.
Builders continue to report rising building costs, as well as increasing mortgage rates, which are impacting their market. Higher land, labour, and material costs have made it difficult for builders to decrease prices, but they are now being compelled to do so.
“In this soft market, more than half of the builders in our survey reported using incentives to bolster sales, including mortgage rate buydowns, free amenities and price reductions,” said NAHB chief economist Robert Dietz.
On a three-month moving average, mood in the Northeast decreased 5 points to 51, while sentiment in the Midwest dipped 5 points to 44. It fell 7 points to 56 in the South, and 10 points to 41 in the West, where housing prices are highest.
The Fed has been leading the global charge in raising interest rates and the full force of these harsh quantitative tightening measures is yet to be felt within the housing, economic and financial markets. With this in mind, there is more pain on the horizon and any failure of the housing market always has a direct, detrimental impact on the broader economy. All forms of debt are becoming unsustainable – from bonds, equities, and mortgages down to small business loans at your local bank, car financing and credit cards.
Let us not forget that when the great US sneezes the UK catches a cold.
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