The mood of the homebuilder is falling for the fourth month in a row

A contractor uses a hammer while working on a townhouse under construction at the PulteGroup Metro residential building in Milpitas, California.

David Paul Morris | Bloomberg | Getty Images

Sharply rising mortgage rates take their toll on the country’s homebuilders, as already expensive new constructions become even less affordable.

Builders’ confidence in the market for new single-family homes fell 2 points to 77 in April, according to the National Association of Home Builders / Wells Fargo Housing Market Index. Any reading above 50 is considered a positive mood, but the reading marks the fourth month in a row with a fall for the index, which stood at 83 in April 2021.

Of the three components of the index, current sales conditions fell 2 points to 85. Buyer traffic fell 6 points to 60, and sales expectations over the next six months rose 3 points to 73 after a fall of 10 points in March.

“Despite low existing inventory, builders are reporting sales traffic, and current sales conditions have fallen to their lowest levels since last summer, as a sharp jump in mortgage rates and persistent supply chain disruptions continue to unsettle the housing market,” said NAHB chairman Jerry Konter, a builder and developer from Savannah, Georgia.

The average interest rate on the 30-year fixed mortgage was around 3.90% at the beginning of March and is now up to 5.15% according to Mortgage News Daily. It is the highest rate in more than a decade. The interest rate loosely follows the interest rate on the US 10-year government bond, which has been rising, but which is also being affected as the Federal Reserve withdraws from the mortgage bond market.

Elevated mortgage rates only exacerbate high prices for both new and existing homes. The median price for a newly built home in February increased by more than 10% compared to the previous year.

“The housing market is facing a turning point as an unexpectedly rapid rise in interest rates, rising house prices and escalating material costs have significantly reduced the conditions for affordable housing, especially in the crucial entry-level market,” said NAHB chief economist Robert Dietz.

Regionally, on a three-month moving average, building resistance rose in the Northeast by 1 point to a reading of 72. In the Midwest it fell 3 points to 69, in the South it fell 2 points to 82 and in the West it fell 1 point to 89.

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