Every single month throughout the year 2022 saw a drop in homebuilder sentiments as a large number of economic headwinds grabbed hold of the housing market, explained released data from the National Association of Home Builders.
Over the course of the previous two years, the market has experienced ever-climbing prices for homes which have in the past few months started to cool as rising mortgage rates quell demand. Additional inflationary pressures have added quite a bit of difficulty to the building of new properties, as expressed by the most recently published Housing Market Index from this past Monday by the National Association of Home Builders and Wells Fargo.
“In this high-inflation, high-mortgage rate environment, builders are struggling to keep housing affordable for home buyers,” explained Jerry Konter, the Chairman of the National Association of Home Builders, via a press release.
Close to 62% of home builders are currently working off incentives such as price reductions and mortgage buydowns to increase overall sales. However, the overall cost for construction has spiked by roughly 30% throughout the year, and just 35% of builders cut prices this month. Those that did, however, chose to cut prices by roughly 8%, marking a jump from the 5% and 6% levels seen earlier in the year.
“We are possibly nearing the bottom of the cycle for builder sentiment,” stated Robert Dietz, the National Association of Home Builders Chief Economist, in the press release, going further to say that the organization is “expecting weaker housing conditions to persist in 2023” directly chased by a “recovery coming in 2024.”
In the face of evidence of downward pressures on prices, climbing mortgage rates have heavily damaged the prospects for the typical family for getting their own home. As explained in an analysis coming from real estate brokerage Redfin, the average monthly mortgage payments for the standard house have spiked well over 45% since the same time just last year to hit $2,682, seemingly pointing to the fact that the necessary salary to afford such a home has jumped from $73,668 to $107,281.
Steps taken by the Federal Reserve to push back against expansionary monetary policies are the main factor behind climbing mortgage rates. The 30-year fixed mortgage rate sat just below 3% for the vast majority of the past two years, expressed via data from Freddie Mac, the government-backed mortgage company, before hitting an unprecedented 7% late last month.
A recent projection from last week put out by Lawrence Yun, Chief Economist of the National Association of Realtors, highlighted that the average home price will soon jump by 0.3% over the course of the next year, which takes place in the wake of a 9.6% jump this year. The economist also projects that the rate for 30-year fixed mortgages will equalize at 5.7%.
“Half of the country may experience small price gains, while the other half may see slight price declines,” explained Yun in his statement. He predicted that markets for California such as San Francisco, where issued with public safety and extreme costs of living are hurting the influx of new residents, could end up seeing a massive double-digit drop in the average price of homes, while the more stable housing markets will be found throughout the southern states of the U.S.