Housing Market = Deep Recession
As of Mid-September, 2022 the United States Housing Market has entered a “Deep Recession.” The causation of this recession has its roots in both mortgage rate increases and ongoing home price inflation. The inflated home prices have both Pandemic/Supply Chain Origins and high consumer demand origins. This has now trickled down to home builders and contractors. In brief, building materials and supplies have been negatively impacted by Covid induced supply disruptions. Plain and simple, homes are markedly more expensive to build, particularly over these past 24 months.
Until Jan-Feb of this year, all of the increased building material costs were passed on to new home buyers. Today however, although building materials are costlier, only a portion can be passed on to the buyer. In fact, builders are now increasing incentives to entice would-be homebuyers. Incentives are taking the form of price reductions, mortgage rate buydowns (Free cash given at closing to buy interest rates down), and free home upgrades/amenities. The National Association of Home Builders (NAHB) reported this week that September was the 9th straight month with falling builder confidence.
This drop in confidence is a simple validation of how all the negative factors (discussed in this article) have hurt home affordability, causing a cooling of the market. Builder sentiment, reported by the NAHB, has declined sharply this year. Primarily due from the elevated construction costs and overly aggressive monetary policy via The Fed. With mortgage rates now over 6 percent, and no signs of any reversal soon, average mortgage payments have doubled this year for consumers. Yet another damper adding to what housing experts (and myself) are calling a “Deep Recession.”
From early August through early September, inflation readings still remained very high. This is leading many of us to believe this week’s FOMC meeting will deliver yet more bad news, in the form of a 75-basis point blow to the market’s ego. Real Estate builders and sellers are already in derision, but this may be the final blow the breaks the market’s stubborn back. Even if Jerome Powell only raises rates 1/2 of a percentage point, most 30-year fixed mortgages will be set at (or above) 6.25% afterwards. Talk about a home sales killer and a slap in the face to most well-off realtors! The fallout from that will soon impact and depress house-related retail sales, such…