Builder Confidence has Plunged due to Rising Interest Rates

Builder Confidence has Plunged due to Rising Interest Rates

May 18, 2022 0 By Keith Jacobs

Due to the fears surrounding inflation and recession, the prices of real estate have increased, and the people are less likely to get a mortgage considering the interest hike announcement by the Federal Reserve. The impact of the monetary policies has started to show on the housing market. The latest report suggests that confidence sentiment among home builders is decreasing.

The National Association of Home Builders, NAHB, suggests that the housing market index or HMI is currently dropped to 69. A comparison of the HMI with previous months indicates that during April, it was standing at 77. It is worth noting that HMI is used to measure the confidence of the builders about their sale projections. A digit above 50 is considered as the expectation of the builders that their houses will be sold.

Another aspect of HMI decline is the sign of decreased activity in the housing market. Since the start of the current month, new buyers have seldom entered the market on account of the sharp uptake in the prices of the interest rates. Furthermore, another important factor is a double-digital cost addition in the building materials. These factors have discouraged new buyers from wanting to purchase a new house or draw a mortgage.

HMI is designed by Wells Fargo Housing Market analysts. The index has remained in a state of continuous decline for the fifth consecutive month. For the ongoing month of May, HMI has reached its lowest rate since June 2020. Real Estate experts postulate that the housing market remains in a constant state of rotation. The factors like interest rates make a huge difference in appreciating or depreciating the housing market.

HMI Projections are Showing Negative Trends

Due to the impact of geopolitical tensions, the prices of housing materials have increased 19% in comparison to last year. Furthermore, the mortgage rates have soared to a 12-year peak and worsened the demand projections for the housing market. An increasing number of people have lost their jobs during COVID, and there are issues like recession and massive money devaluation that have shrunk the purchasing power of the individuals, further curbing demand.

A very negligible amount of new and entry-level homeowners have entered the market this year. Existing home affordability has dropped by 50%. The 3-month regional HMI average indicates that South real estate is at 80, Northeast remained at 72, and Midwest is dropped by 7 points, reaching as low as 62 as per data projections of Weekly Schedule. Real Estate experts expect HMI projections to improve in the next six months potentially.