American Housing Crisis is Historically High

Housing experts are warning the US housing market has officially entered into an era of recession; the confidence of home builders is nosediving, amid the chronic inflation and rising interest rates.

Now, many Americans are less interested in buying new homes as they continue to grapple against the skyrocketing inflation.

US Housing Market in Crisis

The National Association of Home Builders’ Housing Market Index (HMI) dropped for eight consecutive months in August, reaching the historic low of 49.

Ratings above 50 are generally considered positive, so negative indicators are significantly shattering the confidence of home builders.

Last time, the index came in the negative territory momentarily at the start of the coronavirus pandemic. Before that, it remained consistently positive since 2014.

In August last year, the index stood at 80. However, it touched its 35-year high in November 2020, reaching a historic value of 90 when American consumers borrowed a staggering amount of money to invest in real estate amid the low interest rates.

The index for sales of single-family homes dropped from 64 to 57, which contributed significantly to bringing the overall HMI index down. Likewise, the expectations for single-family unit sales in the next six months also decreased from 50 to 47.

Although the decline in builders’ confidence is nationwide, builders in the west seem more pessimistic, compared to the rest of the country.

Reportedly, the confidence of western builders dropped by 11 points, Northeasterners by nine points, Southerners by seven points, and Midwesterners by three points.

Home Builders Forced to Minimize Their Profits

Even though the prices of lands, labor, and construction material have been rising sharply, nearly 20% of the builders reported lowering the prices of houses to increase sales or reduce cancellations on the already booked houses.

According to the data released by a prominent mortgage lender Freddie Mac, the average rate for a 30-year fixed rate mortgage reached 5.22% compared to 2.86% one year ago.

NAHB chief Robert Dietz claimed the Federal Reserve is tightening its monetary policy, which skyrocketed construction costs, leading to the housing crisis.

Now, constructing a new home takes almost eight months or higher, Dietz continued, compared to the pre-pandemic era when houses were easily built within four to six months.ย 

Dietz added that the demand for single-family units would continue to decline in 2022.

However, as the peak of inflation has already passed and the long-term interest rate seems stabilized, now the demand can eventually rise, thus providing much-needed stability to the housing sector, Dietz noted.

Although housing crises are unlikely to be resolved in the short run, Dietz claimed that the sharp increase in demand in the housing sector (after the reduction in the interest rate next year) can provide relief to home builders who are forced to cut their profits these days.

This article appeared in Right Wing Insider and has been published here with permission.