Home builder confidence fell for the eighth straight month in August, as financial advisors say market conditions have forced many of their clients to the sidelines.
Advisors described a market of extremes, with some clients stubbornly refusing to reduce prices on their home, and other clients who have given up on trying to sell or buy at all.
“The market is a little weird right now and it’s just not checked into reality,” said Jay Zigmont, founder of Childfree Wealth in Water Valley, Miss.
The National Association of Home Builders/Wells Fargo Housing Market Index fell six points in August to 49, marking the first time since May 2020 that the index fell below the key break-even measure of 50, the trade group reported on Monday. The index , which is based on a monthly survey of home builders and measures the pulse of the single-family housing market, stood at 75 a year ago and was at 83 in January.
Builder confidence fell in all regions, led by the West, which declined 11 points to 51. The Northeast dropped nine points to 56, the South dropped seven points to 63, and the Midwest dropped three points to 49.
“Tighter monetary policy from the Federal Reserve and persistently elevated construction costs have brought on a housing recession,” NAHB Chief Economist Robert Dietz said in a statement. He added that the volume of single-family starts will post its first decrease since 2011, but there is room for optimism that the demand-side of the market in the coming months will stabilized “as signs grow that the rate of inflation is near peaking.”
Financial advisors said the declining housing market have forced clients to pause plans to buy or sell their home.
“The recent hike in interest rates and the talk of a housing recession has, without a doubt, lessened our clients’ desires to buy or build a new home,” said Bryce Koch of Hiley Hunt Wealth Management in Omaha, Neb. He added that some of his homeowner clients have decided to stay put and invest in their home to make it more enjoyable. “This allows our clients to maintain their very affordable mortgage payment, with a rate of 3% or even lower, but still add something new to their house that they may have been longing for."
Mortgage rates, which had begun to decline in 2019, hit new lows in 2020 and 2021 in response to the Covid crisis. By December 2021, the monthly average rate for a 30-year-fixed-rate mortgage was 2.68%, according to Freddie Mac. The rates continued in the 2% to 3% range throughout 2021. But in January, rates edged upward to 3.45%. The average rate reached 5.41% in July, according to Freddie Mac.
David Born of Private Financial Management LLC in the San Francisco Bay Area said higher housing costs not only have forced buyers on the sidelines, but have also affected sellers, “who just have not accepted the reality of what’s happening in the market,” he said. “Sellers want the price that they could get in January and the buyers just can’t afford it."