The Chicago Journal

September witnesses new home building retreat as mortgage rates intimidate buyers

Rising mortgage rates made it difficult for potential homebuyers in recent months, and home building slowed in September.

Housing starts

According to the US Census Bureau, housing starts fell 8.1% in September from August and 7.7% in 2021.

After a sharp drop this spring, housing starts remained stable until July.

Rising mortgage rates left potential buyers on the sidelines.

However, housing starts rebounded slightly in August as mortgage rates fell briefly.

Since then, interest rates have climbed to almost 7%, the highest level in 20 years.

Meanwhile, building permits rose 1.4% in September from August, down 3.2% year on year.

Home builder confidence

A survey on Monday found that home builders’ confidence declined for the tenth straight month.

High mortgage rates, rising house prices, and continuing supply chain problems have made it difficult for prospective home buyers.

The National Association of Home Builders/Wells Fargo Housing Market Index measures market conditions.

It also looks at current sales, buyer traffic, and sales prospects for the next six months.

According to home builders, traffic from potential new buyers has dropped to its lowest point: the latest was in August 2012.

NAHB President Jerry Konter said:

“High mortgage rates approaching 7% have significantly weakened demand, particularly for first-time and first-generation prospective home buyers.”

“This situation is unhealthy and unsustainable.”

Mortgage rates

The Federal Reserve has steadily raised interest rates throughout the year to curb inflation.

The efforts led to mortgage rates have more than doubled since the start of the year.

Robert Dietz, the chief economist at NAHB, said:: “This will be the first year since 2011 to see a decline for single-family starts.”

“And given expectations for ongoing elevated interest rates due to actions by the Federal Reserve, 2023 is forecasted to see additional single-family building declines as the housing contraction continues.”

Dietz said some analysts thought the housing market was more balanced but said homeownership would decline in the coming months.

“Higher interest rates and ongoing elevated construction costs continue to price out a large number of prospective buyers,” he explained.

However, if mortgage rates fell over the next few years due to lower inflation, the United States could face another severe housing shortage.

Lawrence Yun, the chief economist of the National Association of Realtors, said:

“It is understandable for homebuilders to be cautious in light of slowing home sales and some recent data that indicates softening lease signings for new apartments.”

Yun added that home building is not keeping up with population growth.

Builders and the market

Kelly Mangold of RCLCO Real Estate Consulting said builders are adjusting to market conditions.

The adjustment aims to limit the risk of oversupply, which could lead to a stock market crash similar to the Great Recession.

“The housing market as a whole has been underbuilt for much of the past decade and a half, and there is still significant demand for housing overall,” she said.

With high mortgage rates, it’s no surprise homebuilders are pulling out.

Navy Federal Credit Union corporate economist Robert Frick said there would be no card reversals by 2022.

“We’ll need to wait for 2023 and hope mortgage rates fall and home price increases cool down – with prices in some hot markets even falling slightly – before conditions swing in favor of homebuyers,” said Frick.


New home building retreated in September as rising mortgage rates scare off buyers