A contractor uses a hammer while working on a townhouse under construction at the PulteGroup Metro housing development in Milpitas, California.
David Paul Morris | Bloomberg | Getty Images
Soaring mortgage rates are taking their toll on the country’s homebuilders as already expensive new builds become even less affordable.
Builder confidence in the new single-family home market fell 2 points to 77 in April, according to the National Association of Home Builders/Wells Fargo Housing Market Index. Any reading above 50 is considered positive sentiment, but the reading marks a fourth straight month of declines for the index, which was at 83 in April 2021.
Of the index’s three components, current selling conditions fell 2 points to 85. Buyer traffic fell 6 points to 60, and sell expectations over the next six months rose 3 points to 73 after falling 10 points in March.
“Despite low levels of inventory on hand, builders are reporting sales traffic and current sales conditions have fallen to their lowest levels since last summer as sharp hikes in mortgage rates and ongoing supply chain disruptions continue to unsettle the housing market,” said NAHB Chairman Jerry Konter, a builder and developer Savannah, Georgia.
The average interest rate on the 30-year fixed-rate mortgage was around 3.90% in early March and is now at 5.15%, according to Mortgage News Daily. That’s the highest rate in more than a decade. The rate is trailing loosely the US 10-year Treasury yield, which has risen but is also being hurt as the Federal Reserve pulls out of the mortgage-backed bond market.
Increased mortgage rates only exacerbate high prices for new and existing homes. The median price for a new home in February was over 10% higher than a year earlier.
“The real estate market is at an inflection point as faster-than-expected rises in interest rates, rising home prices and escalating material costs have significantly worsened housing affordability conditions, particularly in the crucial entry-level market,” said NAHB Chief Economist Robert Dietz.
Regionally, homebuilder sentiment in the Northeast rose 1 point on the three-month moving average to 72. In the Midwest it fell 3 points to 69, in the South it fell 2 points to 82 and in the West it fell 1 point to 89.