Rising Rates Push Housing Market to Inflection Point

NAHB indices for builder confidence, affordability continue to drop.

Builder confidence and housing affordability continued to decline given the rapidly rising interest rates combined with higher construction costs and ongoing home price increases, according to the National Association of Home Builders/Wells Fargo Housing Market Index.

The index shaved two points off of builder confidence in newly built single-family homes in this latest reading.

“In the construction financing world, rising rates make an already challenging development deal even more difficult,” Paul Rahimian, CEO, Parkview Financial, tells GlobeSt.com. “With construction costs rising, the addition of higher financing costs, could lead to a slowdown of real estate development and a pull back by developers, which would only increase the lack of supply of some commercial real estate, such as multifamily.

“Developers will hope and argue for higher rental rates, but there is a limit to how much renters can or will pay.”

NAHB Chairman Jerry Konter, a builder and developer from Savannah, Ga., said in prepared remarks that despite low existing inventory, builders report sales traffic and current sales conditions have declined to their lowest points since last summer as a sharp jump in mortgage rates and persistent supply chain disruptions continue to unsettle the housing market.

Housing Market Coping with ‘Unexpectedly’ Quick Rise in Rates

The situation has deteriorated to the point that the housing market now faces an inflection point, NAHB Chief Economist Robert Dietz said in prepared remarks. He cited an unexpectedly quick rise in interest rates, rising home prices and escalating material costs that have significantly decreased housing affordability conditions, particularly in the crucial entry-level market.

Mortgage interest rates currently stand at 5%, the highest level in more than a decade, having jumped more than 1.9 percentage points since the start of the year.

The HMI index gauging current sales conditions fell two points to 85 and the component tracking prospective buyers’ traffic posted a six-point decline to 60. Sales expectations’ gauge in the next six months increased three points to 73 after dropping 10 points in March.