The US housing market remains in “freefall” after a survey showed a “catastrophic” drop in homebuilder confidence, a prominent economist warned on Tuesday.
According to the National Association of Home Builders’ monthly survey, homebuilder confidence plunged in October for the 10th straight month, falling to its lowest level since 2012. The latest downward trend came as mortgage rates fell to levels not seen since the Great Recession level increased.
The results of the survey were “disastrous” and indicated that there is “no bottom yet” for the current housing market slump, according to Ian Shepherdson, chief economist at Pantheon Macroeconomics.
“The plunge in the NAHB index makes it clear that the reported increase in new home sales in September was much more noise than signal,” Shepherdson said in a note to clients. “In short, housing construction is in free fall. So far, sales volumes have been the hardest hit, but now prices are also falling and they have a long way to go.”
Shepherdson added Pantheon has “no confidence at all that mortgage applications have stopped falling” after weeks of contraction in application volume in response to rising mortgage rates. The continued rise in long-term rates is likely to cause home sales to slow “at least” early next year, he added.
The NAHB index fell eight points to 38 in October – five points more than economists had expected. Index values below 50 are seen by builders as a sign of negative sentiment.
The latest downturn came as mortgage rates hit 7%. Combined with still high home prices, higher interest rates are driving many potential homebuyers out of the market due to an affordability crisis.
Mortgage rates have more than doubled this year as the Federal Reserve embarks on a series of sharp rate hikes. While the Fed’s interest rate does not directly affect mortgages, they tend to rise during periods of tighter monetary policy.
“High mortgage rates of nearly 7% have significantly weakened demand, particularly among prospective first- and first-generation homebuyers,” said NAHB Chairman Jerry Konter. “This situation is unhealthy and unsustainable. Policymakers must address this deepening housing affordability crisis.”
As The Post reported earlier this week, home sellers slashed their asking prices at a record pace during the four-week period ending Oct. 9 in an attempt to lure buyers.
Home prices have started to fall in several markets across the country. According to Black Knight’s July Mortgage Monitor report, the median US home price fell 0.77% from June to July. It was the largest monthly drop in property values since 2011.