U.S. Homebuilder Sentiment Falls to Five-Month Low as Mortgage Woes Mount

Key takeaways

• U.S. housebuilder sentiment has fallen to its lowest level since April
• Six-month sales expectations have decreased as nearly a third of all builders cut home prices
• The average 30-year fixed-rate mortgage interest deal is currently 7.1%

U.S. homebuilder sentiment has fallen to the lowest since April as punitively high mortgage rates continue hammering the property market. It’s an admittedly dismal outlook for the property market, especially when new builds had shown signs of life earlier in the year.

The only way for the property market to move again is for mortgage rates to fall significantly — unfortunately, that isn’t happening soon. Here’s everything you need to know about the latest housebuilder sentiment results and where the U.S. property market is at right now.

What’s happening with U.S. homebuilder sentiment?

The National Association of Home Builders and Wells Fargo gauge fell by five points to reach 45 in September, dropping by six points the month before. Consensus estimates from a Reuters poll expected a reading of 50 for September.

A number of factors have caused the sharp decline in optimism. High mortgage rates have frozen the market, with mortgage rates rising from an average of 3% at the start of 2022 to 7.1% today. A decrease in prospective buyers for new builds is also to blame for the plummet in sentiment.

Sales expectations among housebuilders also fell in September as 32% of builders cut prices during the month, the highest rate since December last year. The six-month outlook for home sales has declined to 55 from 49.

“High mortgage rates are clearly taking a toll on builder confidence and consumer demand, as a growing number of buyers are electing to defer a home purchase until long-term rates move lower,” NAHB Chief Economist Robert Dietz said.

What does it mean for the property market?

Housebuilder sentiment had been rising throughout the year, so it’s a blow to the housing market and the economy that it’s dipped below 50, which is a typical indicator of an impending recession.

The housing market remains frozen as buyers and sellers wait for higher interest rates. Redfin research found nearly 92% of all U.S. homeowners with mortgages had a fixed-rate interest deal below 6%, having locked in deals before interest rates began to climb. In August, nearly 16% of all home sale deals were canceled, the highest rate in nearly a year.

With housing inventory languishing at record lows, the impact is that existing property prices are set to rise. Zillow predicts property prices will climb by 5.8% by the end of the year alone; in a bid to draw in new buyers, the home sales company is now offering 1% down payment options on houses.

Unfortunately, there’s no immediate end to the mortgage rate woes. The consensus estimate from Reuters polled economists predicted that interest rates will only begin to fall in the spring, and it will take time for the cuts to filter down to mortgage rates.

The bottom line

The fact that U.S. housebuilder has dropped so low so quickly is a sign that the housing market is perhaps worse than economists and Wall Street analysts had initially picked up on. And the only way out is lowering interest rates — but the Fed can’t do that until inflation is under control. There may be some pain in the market ahead.