Rising interest rates aren’t helping the nation’s home builders.
The cost of building materials remains “stubbornly high,” according to the NAHB report. Add that to the elevated interest rates, and you get declining affordability.
Housing Market Slump Continues for 11th Month
“Higher interest rates have significantly weakened demand for new homes as buyer traffic is becoming increasingly scarce,” said NAHB Chairman Jerry Konter, a home builder and developer from Savannah, Ga. “With the housing sector in a recession, the Biden administration and new Congress must turn their focus to policies that lower the cost of building and allow the nation’s home builders to expand housing production.”
Builders Using Incentives
To bring more buyers into the marketplace, 59% of builders report using incentives, with a big increase in usage from September to November. For example, in November, 25% of builders say they are paying points for buyers, up from 13% in September.
Mortgage rate buy-downs rose from 19% to 27% over the same time frame. And 37% of builders cut prices in November, up from 26% in September, with an average price of reduction of 6%.
This is still far below the 10%-12% price cuts seen during the Great Recession in 2008.
Building Costs Remain High, Regulatory Costs Are an Additional Challenge
“Even as home prices moderate, building costs, labor and materials — particularly for concrete — have yet to follow,” said NAHB Chief Economist Robert Dietz. “To ease the worsening housing affordability crisis, policymakers must seek solutions that create more affordable and attainable housing. With inflation showing signs of moderating, this includes a reduction in the pace of the Federal Reserve’s rate hikes and reducing regulatory costs associated with land development and home construction.”
NAHB Housing Market Index – November 2022 – By the Numbers
The NAHB uses a survey of its members to develop the Housing Market Index. Members rate Single Family Sales (present), and Single Family Sales (next 6 months) with a rating of poor, fair or good.
Members rate Traffic of Prospective Buyers from low, average to high.
Here’s what NAHB members reported for the November Index:
- Single Family Sales – 39
- Single Family Sales (next 6 months) – 31
- Traffic of Prospective Buyers – 20
- Those three indexes are averaged to reach the Housing Market Index, which is 33.
Regional Housing Market Index Numbers
- The Northeast saw the biggest decline in the Housing Market Index, dropping from 47 in the October report to 30.
- The Midwest held steady, dropping one point to 36.
- The South dropped 7 points to 34 and the West dropped 3 points to 28.
Get the latest headlines from Small Business Trends. Follow us on Google News.
Image: Envato Elements