Why has home construction stalled in the seller’s housing market?

• Builder sentiment fell for the ninth straight month in September, according to the National Association of Home Builders.
• Last week, mortgage rates topped 6% for the first time since late 2008. This is because the August inflation report turned out to be worse than expected.
• On average, builders cut prices by 6%, according to NABH.

by many account, we yet and seller’s market.

Home prices continue to rise across most of the United States. mortgage interest rate Climb higher and higher. Inventory levels, which housing economists typically use to determine whether the market favors buyers or sellers, position the country squarely in a seller’s market.

But even just 3.3 months of housing supply is considered balanced for about 5-6 months. Homebuilders are having a hard time selling their homes. Builder sentiment fell for the ninth straight month in September, according to the National Association of Home Builders/Wells Fargo Home Market Index released on Monday.

Inventory levels are low, but shortages are most acutely felt at the lower end of the price range. Starter homes or entry-level homes, the segment with the highest demand, are not being built at the right level.

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According to the U.S. Census Bureau, the percentage of new homes sold for less than $300,000 was 38% in 2020, 23% in 2021, and just 11% in the first seven months of 2022.

Jerry Howard, president and CEO of the National Association of Home Builders, told USA TODAY that focusing on the lower-priced segment doesn’t make economic sense for builders.

“Given the cost of building materials and the cost of regulatory compliance, it’s very, very difficult to build your first home and still make a pencil for you, anywhere in the country,” says Howard.

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Builder confidence in the new single-family home market fell three points in September to 46, the lowest level since May 2014 outside of spring 2020, according to the index.

“Right now, builders aren’t so focused on housing that I would say we’re totally slowing down,” Howard says.

Why is Builder Sentiment Down?

Last week, mortgage rates climbed above 6% for the first time since late 2008. This is because the August inflation report turned out to be worse than expected.

According to Freddie Mac’s Primary Mortgage Market Survey, the average interest rate for a 30-year fixed-rate mortgage rose to 6.02% in the week ending September 15. This time last year, the rate was 2.87% for him.

“High mortgage rates and high home prices have made it financially impossible for many households to buy a new home,” said Jerry Conter, president of the National Association of Home Builders. Buyer traffic is weak in many markets because they are on the sidelines.” Homebuilder and developer from Savannah, Georgia.

Are Home Builders Lowering Prices?

“In another indicator of market weakness, 24% of builders reported lower home prices, up from 19% last month,” said Konter.

On average, builders cut prices by 6%, according to the Home Builders Association.

Three-month moving averages of regional housing market index scores show the Northeast down 5 points to 51, the Midwest down 5 points to 44, the South down 7 points to 56, and the West down 10 points. I got 4.

Regional differences relate to the diversity of each economy and the policies in place at the state and local levels, Howard says.

Are we in a housing depression?

Broadly speaking, housing recession means decline Economic activity related to the housing sector.

“There’s no precise definition for it,” Robert Dietz, chief economist for the Home Builders Association, told USA TODAY. “It’s a judgment call.”

However, one of the leading indicators of the housing recession is a significant drop in single-family housing starts.

“In 2022, we will see a decline for the first time since 2011,” says Dietz. “The seasonally adjusted annual rate of single-family permits fell 25% by August, from a peak in February.”

July new home sales were down nearly 30% year-over-year.

Existing home sales also fell 20% year-over-year in July. Builder trust is generally low.

“In 2022, builder sentiment is dropping month by month, and the housing recession shows no signs of abating,” says Dietz. “In this soft market, more than half of builders surveyed report using incentives such as mortgage rate buybacks, free amenities and markdowns to boost sales.”

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What can policy makers do to revitalize the housing market?

Policy makers can resolve supply chain issues and negotiate long-term, stable deals with Canada on Canadian timber imports, Howard says.

“Right now we are in a real box of housing and only policy makers can get us out of there,” he said.

The builders have experienced delays in receiving everything from the concrete sourced from Mexico to the transformers (components are sourced from China) needed to power the cabinets, toilets and tiles. I’m here.

“Delays add cost, and delays frustrate consumers,” says Howard.

Swapna Venugopal Ramaswamy is USA TODAY’s housing and economics correspondent. Follow her on her Twitter @SwapnaVenugopal and sign up for her Daily Her Money newsletter here.