Home builder sentiment, deep in throes of its longest decline in four decades, slumped further against this month as mortgage rates surged to levels last seen during the 2008 housing crisis.
National Association of Home Builders/Wells Fargo Housing Market Index of builder sentiment fell to 46 points this month, well below the 50 mark that generally signals growth and extending a decline of nine consecutive months for the benchmark survey, the longest losing streak since 1985.
Last week, data from the Mortgage Bankers Association showed that interest rates on a 30-year fixed loan topped 6% for the first time since November of 2008, Mortgage rates have risen by around 4% so far this year, adding nearly $389,000 in interest rate payments to the life of a $500,000 home purchase.
A lack of new supply is adding to the pressures, as well, with U.S. housing starts hitting a one-and-a-half year low in July, thanks in part to surging mortgage rates and elevated construction costs.
“Builder sentiment has declined every month in 2022, and the housing recession shows no signs of abating as builders continue to grapple with elevated construction costs and an aggressive monetary policy from the Federal Reserve that helped pushed mortgage rates above 6% last week,” said NAHB Chairman Jerry Konter.
“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,” he added.
Last week's MBA data showed its seasonally-adjusted Purchase Index, which tracks mortgage applications for the purchase of a single-family home, rising just 0.2% as buyers backed away from new transactions amid the surge in borrowing costs, New applications, meanwhile, were down 1.2%.
Pantheon Macroeconomics analyst Ian Shepherdson thinks the September sentiment numbers are likely to fall further.
"Homebuilders’ sentiment tends to track the path of mortgage applications with a short lag," he said "This probably will not mark the bottom of the cycle, given the latest surge in mortgage rates above 6%. The rate of fall of mortgage applications slowed over the summer, but the early September numbers point to a renewed sharp decline."
Later this week, investors will also be focused on a key set of figures from the quickly-weakening housing market, with data on housing starts and building permits for the month of August at 8:30 am Eastern time on Tuesday, and existing home sales data following at the same time on Wednesday.
July quarter earnings from homebuilders Lennar (LEN) and KB Home (KBH) are also expected Wednesday prior to the start of trading.
