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Homebuilders are viewing the housing market as reaching an inflection point. Rising interest rates, home prices, and building material costs are taking their toll on housing affordability—and builders’ confidence.
Builder sentiment continued to fall in the latest reading from the National Association of Home Builders/Wells Fargo Housing Market index. This marks the fourth consecutive decline in builder confidence.
Builders report that sales traffic and current sales conditions have fallen to their lowest points since last summer. They blame rising mortgage rates—the 30-year fixed-rate mortgage has now climbed above a 5% average—as well as supply chain disruptions that are prompting the slowdown in the new-home market.
“The housing market faces an inflection point as an unexpectedly quick rise in interest rates, rising home prices, and escalating material costs have significantly decreased housing affordability conditions, particularly in the crucial entry-level market,” Robert Dietz, chief economist of the National Association of Home Builders, writes on the Eye on Housing blog.
Mortgage rates have climbed more than 1.9 percentage points since the beginning of the year. They are at their highest level in more than a decade. The 30-year fixed-rate mortgage averaged 5% last week, Freddie Mac reports.
What’s more, the prices of goods used in residential construction rose again in March and are up 8% since the start of 2022, NAHB reports citing Bureau of Labor Statistics data. Year over year, building material prices have increased 20.4% and have risen 33% since the beginning of the pandemic.