How Is Biden Going To Spin This? The People Who Build Homes Say Housing Is In A Recession

By Roberta Elliot | Wednesday, 17 August 2022 12:00 PM
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How Is Biden Going To Spin This? The People Who Build Homes Say Housing Is In A Recession

Confidence among home builders fell for the eighth consecutive month, indicating that the United States has entered a housing recession, according to a Monday release from the National Association of Home Builders.

The group’s Housing Market Index declined by six points in August to 49, marking the first time since the spring of 2020 that the metric has dropped below the breakeven value of 50. The three components of the Housing Market Index — recent sales conditions, sales expectations, and traffic of prospective buyers — all dropped to their lowest levels in the past two years.

“Ongoing growth in construction costs and high mortgage rates continue to weaken market sentiment for single-family home builders,” NAHB Chairman Jerry Konter announced in the release. According to data from government-backed mortgage enterprise Freddie Mac, mortgage rates started increasing at the beginning of 2022, with 30-year fixed rates beginning at slightly over 3% in January and swelling to more than 5% as of Thursday.

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Single-family homes have witnessed dramatic price gains since COVID and the lockdown-induced recession. In the first quarter of 2022, the median sale price of a home in the United States was $433,100, according to data from the Department of Housing and Urban Development, marking a 34% climb from $322,600 in the second quarter of 2020. Freddie Mac forecasted that home prices will increase at 4% in 2023 — a relative slowdown from 17.8% in 2021 to 12.8% in 2022.

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The Federal Reserve added to a series of interest rate hikes by raising rates at a 0.75% increment for the second consecutive month. Rate hikes are meant to discourage inflation, yet they carry the unfortunate side effect of increasing borrowing costs — a reality that impacts mortgage rates and renders real estate more expensive.

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“Tighter monetary policy from the Federal Reserve and persistently elevated construction costs have brought on a housing recession,” NAHB Chief Economist Robert Dietz continued. “However, as signs grow that the rate of inflation is near peaking, long-term interest rates have stabilized, which will provide some stability for the demand-side of the market in the coming months.”

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The Housing Market Index survey determined that 69% of home builders point to higher interest rates as the reason for falling housing demand. Meanwhile, 19% announced they have chosen to decrease prices over the past month to increase sales or prevent cancellations.

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Beyond home builders, consumer confidence has declined since early 2021 amid increasing inflation and other economic bottlenecks. The University of Michigan’s benchmark Survey of Consumers recently plunged to a reading of 50 — indicating the lowest level of consumer optimism since 1952.

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