“Higher mortgage rates hammer confidence,” read the headline from Wednesday’s US builder sentiment update.

Golf claps and eye rolls. The NAHB made a joke. Did you catch it? They really want you to catch it. “Hammer.” Hammers. People use hammers to build things. Like homes. Get it? Get it?!

The headline print on the sentiment gauge was 45. That’s not good. May marks the first month below the 50 line that separates net optimism from pessimism since February.

Although mortgage rates retreated over the last two weeks, they rose to the highest since November during the latter stages of the hawkish re-pricing across the US rates complex.

Carl Harris blamed financing costs for “push[ing] many potential buyers back to the sidelines” early this month and late last.

If you’re not familiar, Carl’s a Wichita resident. He builds custom homes. With hammers. Carl’s an avid hammer user. He’s also NAHB chair currently, and in addition to mortgage rates, he’s irritable at conservation.

“We are concerned about the recent codes rules that require HUD and USDA to insure mortgages for new single-family homes only if they are built to the 2021 International Energy Conservation Code,” Harris said Wednesday.

That code stipulates minimum design and construction requirements for energy efficiency. If you ask Harris, forcing builders to adhere to the 2021 update “will further increase the cost of construction,” bad news “in a market that sorely needs more inventory.”

NAHB chief economist Robert Dietz didn’t mention energy efficiency in his remarks. Instead, he cited stalled disinflation progress and the read-through for rates. Here, as in other places, the Fed’s caught in a kind of insanity loop. The longer inflation stays elevated, the longer financing costs will remain prohibitive, which is constraining supply in two ways: Existing homeowners won’t sell (because they don’t want to give up their rate) and builders are moody because high rates pressure margins (from multiple angles). Constrained supply means support for prices, which means prolonged inflation.

“The last leg in the inflation fight is to reduce shelter inflation, and this can only occur if builders are able to construct more attainable, affordable housing,” Dietz sighed. A quarter of builders cut prices to juice sales this month. It was the first increase in five. The use of other incentives was more prevalent in May compared to April.

Separately (but relatedly) the MBA said mortgage applications increased a second week as rates slipped further.

7.08% counts as the lowest since early last month, and it comes courtesy of a nascent deceleration in some key measures of US economic activity and signs of labor market cooling.

“The decline in rates led to a small boost [for] refinance applications [but] the overall level of refi activity remains low,” MBA VP Joel Kan said, adding that “while the downward move in rates benefits prospective homebuyers, mortgage rates are still much higher than they were a year ago, while for-sale inventory remains tight.”

In other words: Yes, financing costs are off the highs. But with prices scaling new peaks in 2024, rates anywhere above 7% are a nail in the coffin for millions of families struggling to make the math work. Get it? “Nail.” Nails. People hammer nails. With hammers. When they’re building things. Like homes. Get it?!