Housing crisis: Confidence in home-building falls for 12th month straight amid inflation
As the US continues to battle with high inflation, a report found confidence in home-builders has dropped again for the 12th month in a row, to a near-record low
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Confidence from home-builders fell for another month straight, marking a full year of declining faith in the US housing market. Amid record inflation and another rise in interest rates, reports found confidence has continued to fall despite the jobs market rebounding.
The National Association of Home Builders on Monday said its NAHB/Wells Fargo Housing Market Index dropped two points to 31 in December, falling short of the median estimate of 34 among economists in a Reuters poll.
Anything below 50 indicates more builders view conditions as poor rather than good, and it marks the lowest point since June 2012, barring a short lived plunge in April 2020 during the first wave of Covid-19.
NAHB said nearly two-thirds of builders were offering incentives, including mortgage rate buy-downs, paying points for buyers and price reductions.
While the percentage actually cutting prices outright dipped marginally to 35 percent, the average discount offered rose to eight percent from between five percent and six percent earlier in the year.
"The silver lining in this HMI report is that it is the smallest drop in the index in the past six months, indicating that we are possibly nearing the bottom of the cycle for builder sentiment," said Robert Dietz, NAHB's chief economist.
"Mortgage rates are down from above seven percentage in recent weeks to about 6.3 percentage today, and for the first time since April, builders registered an increase in future sales expectations."
Matthew Martin, US economist at Oxford Economics also told Reuters: "The cuts in prices and other incentives will help offset the erosion in home-buying affordability and should help to keep some floor under new home sales.
“The latest decline in mortgage rates – if it sticks – will also improve affordability at the margin.”
Meanwhile, according to data from Amherst Group, an investment firm that buys single-family homes to rent out, home prices are still up about 40 percent from pre-pandemic levels.
They said even a further drop of about 15 percent would merely bring them to mid-2021 levels, and insisted the current downturn is not like the mid-2000s real estate bubble bursting.
Other experts also backed the US housing market despite its current issues.
“The US housing market is still supported by a tight labor market, the lock-in effect of low fixed mortgage rates for existing homeowners, tight mortgage underwriting, low leverage in the mortgage sector, and low housing supply,” said Brandywine fixed-income analyst Tracy Chen in a report earlier in December.
“We believe we can avoid a severe housing downturn like the one in the Global Financial Crisis.”
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Gene Goldman, chief investment officer at Cetera Investment Management, also told CNN: “Housing is not bringing down the economy.
“Yes, the housing market has been impacted. But mortgage delinquencies are still low.”
It comes after the Federal Reserve raised interest rates again on Wednesday by .5 points, to between 4.25 percent to 4.5 percent.
Fed Chair Jerome Powell said the Fed has a “ways to go” before it takes a breather and holds rates steady.