May 18, 2022 - Economy

Homebuilders starting to feel higher mortgage rates

Data: FactSet; Chart: Axios Visuals

The once-giddy mood among homebuilders, a side effect of the COVID-era housing boom, is ebbing in as mortgage rates surge.

Driving the news: The National Association of Home Builders' measure of confidence among builders of single-family homes fell for the fifth-straight month, near a two-year low.

  • Separate gauges measuring sales expectations over the next six months and traffic of potential buyers also fell sharply.

Why it matters: The drop reflects how the Fed's push to lift rates is quickly changing the economic terrain for companies and consumers alike.

  • Mortgage rates — heavily influenced by expectations for what the Fed will do with interest rates — have soared to more than 5.25%, from roughly 3%, for a 30-year fixed-rate loan.
  • The rise — along with a roughly 20% rise in home prices over the last year — has drastically reduced affordability.

What they're saying: "The surge in rates is clearly choking off the flow of would-be new buyers," wrote Ian Shepherdson, chief economist at Pantheon Economics.

The bottom line: The Fed is trying to slow the breakneck pace of rising house prices, and homebuilders are clearly getting a bit jittery about a potential slowdown — but their mood, at least by recent standards, remains quite elevated.

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