The U.S. housing market could be on the verge of “collapse”, an economist has warned after data came out this week showing a collapse in homebuilder confidence in July.
U.S. homebuilder confidence fell 12 points to 55 in July, according to the latest data from the National Association of Home Builders/Wells Fargo Housing Market Index released on Monday.
Sentiment has fallen for seven consecutive months and is now at its lowest level since May 2020 – with more potential problems for owners.
“Homebuilders have denied the extent of the decline in demand, despite mortgage applications falling by more than a quarter in the first half of the year, with no end in sight to the decline,” said Ian Shepherdson, chief economist at Pantheon. Macroeconomics. “Now they recognize the reality.”
“Very soon anyone who has bought a home in the last few months will be sitting on a loss,” Shepherdson added.
Forbes and Marketwatch were the first to report on Shepherdson’s remarks.
The National Association of Home Builders noted that confidence in the housing market had plummeted due to the impact of high inflation and rising interest rates which caused “a dramatic slowdown sales and buyer traffic”.
Mortgage rates have added to the difficulties of potential buyers who must balance their long-term loan commitments with sky-high house prices that have surged during the COVID-19 pandemic.
The July reading of the survey fell short of expectations of 31 economists polled by Reuters. The 12-point month-over-month decline was the second-largest on record since 1985.
NAHB President Jerry Konter said 13% of builders who took part in the monthly survey said they had cut home prices in the past month to attract buyers.
“Production bottlenecks, rising home construction costs and high inflation are causing many builders to halt construction as the cost of land, construction and financing exceeds the market value of the home” , Konter said in a statement accompanying the results of the investigation.
Mortgage rates have climbed steadily to their highest level in years in expectation of tighter borrowing conditions as the Federal Reserve aggressively raises its benchmark interest rate to fight inflation.
The average contractual interest rate on a 30-year fixed-rate mortgage climbed to 5.51% for the week ending July 14. The same rate hovered below 3% a year earlier.
As The Post reported last month, a growing number of economists expect a slowdown in housing as interest rates rise in the coming months – with one expert warning of a correction “of coast to coast” that will drive prices down in overvalued markets.
Still, experts say the downturn won’t be as bad as the 2008 housing crisis that emerged when the subprime mortgage market imploded.