Homebuilder sentiment remained in the dumps early this month, according to the September installment of the NAHB’s mood survey.
At 32, the headline printed below the threshold separating net optimism from pessimism for a — checks notes — 29th straight month. Consensus was looking for 34. This month’s readout was tied for the worst in almost four years, which is to say the last time the NAHB’s index was lower was December of 2022.
“Buyer traffic has weakened across much of the country, largely because of rising mortgage rates,” NAHB Chairman Bill Owens said, adding that in addition to higher material costs, builders are grappling with “rising gas and diesel prices.”
Insult to injury: Labor shortages appear to be worsening as “increased immigration enforcement is discouraging legal workers from reporting to job sites.” (Emphasis mine.)
That, folks, is what policy failure sounds like. The figure below is what it (policy failure) looks like.
The NAHB gauge has managed just four prints in happy territory since the summer of 2022. The forward-looking sales measure in Wednesday’s report tumbled six points to 37, the lowest since January of 2023.
In the color accompanying the release, the association’s long-time chief economist Robert Dietz lamented the persistence of “tight lending conditions and elevated land, labor and construction costs.”
Meanwhile, the MBA said purchase apps slumped more than 4% over the week, adjusted for the Labor Day holiday. It’s no secret why: The ongoing rise in 10-year Treasury yields has pushed mortgage rates back near 7%.
As the figure shows, the average 30-year fixed was 6.97%, up 12bps, the largest week-to-week increase since late-March.
“Ongoing market concerns over spiking energy prices, persistently high inflation and future monetary policy [are] push[ing] bond yields and mortgage rates higher,” MBA VP Joel Kan sighed.
Higher mortgage rates, he went on, are causing “many buyers to pause their purchase decisions” while “the current level of rates also eliminate[s] much of the benefit to refinance.”
Womp, womp.
Interest rates are not the only culprit. The cost of owning a house depends more crucially on the price you pay to own it. Input costs are certainly way up, but builders insist on building larger, more expensive houses to generate more profit. My wife and I bought our first house in 1984 with a 13% mortgage. But the house, built in 1926 but with a recent addition, only cost $51,400. and we put down $10,000. We refinanced a few years later at 9-7/8% and shortened up the mortgage to 15 instead of 30 years. Smaller houses with smaller price tags would help break the current logjam.
Funny, I thought the “brink” was the 9.5% I paid in 1970, and the 9% in 1974.