The US housing market remains in “free fall” after a survey showed a “disastrous” decline in homebuilder confidence, a prominent economist warned on Tuesday.
Homebuilder confidence plunged for the 10th consecutive month in October, falling to its lowest level since 2012, according to the National Association of Home Builders’ monthly survey. The latest downtick came as mortgage rates spiked to levels not seen since the Great Recession.
The survey’s results were “disastrous” and indicated there is “no bottom yet” for the housing market’s current slump, according to Ian Shepherdson, chief economist at Pantheon Macroeconomics.
“The plunge in the NAHB index makes it clear that the reported jump in new home sales in September was much more noise than signal,” Shepherdson said in a note to clients. “In short, housing is in free fall. So far, most of the hit is in sales volumes, but prices are now falling too, and they have a long way to go.”
Shepherdson added that Pantheon has “no faith at all that mortgage applications have stopped falling” following weeks of declining application volume in response to rising mortgage rates. Ongoing increases in long-term rates will likely cause home sales to fall through early next year “at least,” he added.
The NAHB index fell eight points to 38 in October – five more points than economists had expected. Index readings below 50 are considered a sign of negative sentiment among homebuilders.
The latest downturn occurred as mortgage rates creep toward 7%. Coupled with still-high home prices, the higher rates are driving many prospective homebuyers out of the market due to an affordability crunch.
Mortgage rates have more than doubled this year as the Federal Reserve moves forward with a series of sharp interest rate hikes. While the Fed’s benchmark rate does not directly impact mortgages, they tend to rise in periods of tightening monetary policy.
“High mortgage rates approaching 7% have significantly weakened demand, particularly for first-time and first-generation prospective home buyers,” said NAHB Chairman Jerry Konter. “This situation is unhealthy and unsustainable. Policymakers must address this worsening housing affordability crisis.”
As The Post reported earlier this week, home sellers slashed their asking prices at a record pace during the four-week period ending on Oct. 9 as they attempt to entice buyers.
Home prices have begun to fall in several markets across the country. The median US home price declined 0.77% from June to July, according to Black Knight’s July Mortgage Monitor report. It was the largest month-over-month decline in home values since 2011.