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Homebuilder Confidence Drops to 7-Month Low as Mortgage Rates Surge

home under construction

U.S. homebuilder sentiment dropped in April, the fourth consecutive decline, as the highest mortgage rates in more than a decade eroded affordability for buyers.

A gauge of homebuilder sentiment fell to a seven-month low of 77, dropping from 79 in March, according to the National Association of Home Builders/Wells Fargo Housing Market Index released Monday.

Homebuilders continue to face headwinds as mortgage rates, housing prices and construction costs are rising simultaneously, said Robert Dietz, NAHB’s chief economist.

“The housing market faces an inflection point as an unexpectedly quick rise in interest rates, rising home prices and escalating material costs have significantly decreased housing affordability conditions, particularly in the crucial entry-level market,” he said.

Housing affordability is becoming a larger issue for buyers as mortgage interest rates have skyrocketed almost two percentage points since the start of 2022. The average U.S. rate for a 30-year fixed mortgage was 5% last week, the highest level in more than a decade, Freddie Mac said in a Thursday report. A year ago, the rate was 3.04%, the report said.

A subset of the NAHB data showing current sales conditions declined by two index points to 85, while a measure of sales expectations in the next six months rose three points to 73, according to NAHB data. An index measuring traffic of prospective buyers dropped by six points to 60.

The supply-chain bottlenecks sparked by the Covid-19 pandemic have increased costs, hampering the ability of homebuilders to construct more homes, said Jerry Konter, chairman of the NAHB.

“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,” he said.

In the existing-home market, the number of homes available for sale dropped in January to the lowest level ever recorded, according to data from the National Association of Home Builders.

Measured by region, the Northeast reported its level of homebuilder confidence rose one index point to 72 while the Midwest declined by three points to 69. The South fell by two points to 82 while the West declined by one point to 89.

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