According to the National Association of Home Builders (NAHB), homebuilder confidence has dropped for an eighth consecutive month and the U.S. is currently experiencing a “housing recession” driven by the Federal Reserve’s efforts to control inflation. A recent report from the NAHB and Wells Fargo revealed that builder confidence in the market for newly constructed single-family homes dropped 6 points this month, falling into the negative for the first time since a brief period at the beginning of the pandemic.
The eight-month slide in homebuilder confidence is the longest period since the housing market collapsed more than a decade ago. The Fed has been sharply hiking interest rates in an effort to rein in the nation’s soaring inflation. NAHB Chief Economist Robert Dietz stated, “Tighter monetary policy from the Federal Reserve and persistently elevated construction costs have brought on a housing recession. The total volume of single-family starts will post a decline in 2022, the first such decrease since 2011.”
In July, the central bank announced that it will raise its benchmark interest rate by three-quarters of a percentage point, which comes after a similar 75 basis point increase in June. The consecutive rate increases were comparable to six regular rate rises in only two months, as the Fed typically raises rates by only a quarter of a percentage point. Nearly 70% of the homebuilders questioned said rising interest rates were to blame for decreases in housing demand, while around 1 in 5 said they had recently lowered prices to reduce cancellations or boost sales.
Mortgage rates have swiftly increased from their extremely low levels during the outbreak when the Fed cut interest rates to almost zero. According to Freddie Mac, the average 30-year fixed-rate mortgage is currently at 5.22%, an increase of 2.35 percentage points from a year ago. However, the cost of housing has steadily increased. For the twelve months ending in June, the median price of an existing property increased to $416,000, an increase of 13.4%. According to a National Association of Realtors study released on Wednesday, the increase caps a record-breaking stretch of 124 months in a row with year-over-year price increases.
The existing house sales data for July is slated to be released this week and is predicted to reveal a decline. This week will also see the publication of new housing starts data, which tracks the annualized change in the number of new residential buildings that have started construction; it is also forecasted to have declined. Many analysts believe the Fed’s move to battle inflation is too far behind the curve, and there are concerns that it may cause the U.S. economy to experience a generalized recession.