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Housing Market Recession Is Here: Home Builders Slash Prices As Buyers Cancel Contracts, Mortgage Rates Rise


Home builder confidence plunged to a new two-year low in August as higher interest rates, lingering supply chain problems and record home prices continue to exacerbate housing affordability challenges, the National Association of Home Builders reported Monday, prompting some experts to warn the housing market collapse could be far from over.

Key Facts

Home builder confidence posted its eighth consecutive monthly decline, falling 6 points to 49 to hit the lowest level since May 2020, according to the NAHB/Wells Fargo Housing Market Index released Monday.

“Ongoing growth in construction costs and high mortgage rates continue to weaken market sentiment,” NAHB Chair Jerry Konte said, noting that buyer traffic fell to the lowest level since April 2014, barring the spring of 2020 when the pandemic first hit, in a “troubling sign” that consumers are now “sitting on the sidelines due to higher housing costs.”

In a statement, NAHB Chief Economist Robert Dietz declared that tighter monetary policy and “persistently elevated” construction costs have “brought on a housing recession,” and predicted single-family housing starts, or ​​new houses on which construction started, will decline in 2022 for the first time since 2011.

In another concerning sign for sentiment, 19% of respondents, which encompass nearly 1,000 home builders, reported slashing prices in the past month to help bolster sales or limit cancellations, with the median price reduction at approximately 5%. “

In short, the housing downturn has some way yet to run,” Pantheon Macro chief economist Ian Shepherdson said of the “grim” data in emailed comments, pointing out the home builder index has failed to surpass economist projections every month since January.

The other components in the survey, including present sales and expected sales, also fell again this month, tracking the “steep and sustained” decline in mortgage demand, which has plummeted nearly 30% from a December peak, Shepherdson notes.

Crucial Quote

“The collapse points to clear and substantial downside risk for housing construction over the next few months, as builders try to manage their excess inventory,” says Shepherdson. “That will be impossible without hefty price declines, now that developers are competing with rapidly rising inventory in the existing homes market.”

Key Background

The housing market has been on a volatile ride since the start of the pandemic. Booming demand, boosted by historically high savings and low interest rates, drove record growth in home sales and prices, but this year has brought forth a stark turnaround. New home sales plunged at a 61% annualized rate in the second quarter, as mortgage rates hit 6%, some 2.5 percentage points higher than one year prior. Last week, the National Association of Realtors reported housing affordability has hit its worst level in 33 years amid the higher mortgage rates and record prices.

What To Watch For

A slew of housing data is slated for this week, including housing starts on Tuesday and existing home sales on Thursday.

Further Reading

It Was Less Affordable To Buy A Home In June Than It’s Been In 33 Years (Forbes)

Housing Market ‘Meltdown’ Intensifies: Home Builders Halt Construction As Confidence Plunges To Two-Year Low (Forbes)

New Home Sales Crater Again As Experts Worry Downturn Could Spark Recession (Forbes)