Home News US housing market could be headed for ‘meltdown’: economist

US housing market could be headed for ‘meltdown’: economist

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US housing market could be headed for ‘meltdown’: economist

The U.S. housing market may be on the verge of a “collapse,” an economist warned after data released this week showed homebuilder confidence collapsed in July.

The U.S. homebuilder confidence index plunged 12 points to 55 in July, according to the latest data from the National Association of Home Builders/Wells Fargo Home Market Index released Monday.

Sentiment has fallen for seven straight months and is now at its lowest level since May 2020 – and homeowners could face more trouble.

“Homebuilders have been in denial about the extent of the drop in demand, even as mortgage applications fell by more than a quarter in the first half of the year and the downward trend has no end in sight,” said Ian Shepherdson, chief economist at Pantheon Macroeconomics. “Now, they’re acknowledging reality.”

Shepherdson added: “Soon, anyone who has bought a home in recent months is going to lose money.”

Shepherdson’s remarks were first reported by Forbes and Marketwatch.

Mortgage rates soared along with the Fed’s benchmark rate.
Christopher Sadowski

The National Association of Home Builders noted that confidence in the housing market has fallen due to a “sharp slowdown in sales and buyer traffic” due to high inflation and rising interest rates.

Mortgage rates have exacerbated the struggle for would-be buyers, who must balance long-term loan commitments with skyrocketing home prices during the COVID-19 pandemic.

The survey’s July reading was below expectations of all 31 economists polled by Reuters. The month-on-month decline was 12 percentage points, the second-largest decline since records began in 1985.

house under construction
Homebuilder sentiment plunged 12 points in July.
Getty Images

NAHB chairman Jerry Konter said 13 percent of builders who took part in the monthly survey said they had lowered their prices in the last month to attract buyers.

“Production bottlenecks, rising home construction costs and high inflation have led many builders to stop building as land, construction and financing costs exceed the market value of homes,” Conte said in a statement alongside the findings.

Mortgage rates have steadily climbed to their highest levels in years as the Federal Reserve sharply raised its benchmark rate to fight inflation and borrowing conditions are expected to tighten.

house under construction
High inflation and rising commodity costs weighed on home builders.
Christopher Sadowski

The average contract rate for a 30-year fixed-rate mortgage climbed to 5.51% in the week ended July 14. That rate hovered below 3 percent a year ago.

As The Washington Post reported last month, a growing number of economists are expecting a slowdown in the housing market as interest rates rise in the coming months — one expert warned, “Coast to coast “A correction will cause prices to fall in overvalued markets.

Still, experts say the slowdown won’t be as severe as the housing crisis that followed in 2008 when the subprime mortgage market collapsed.

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