The housing market is moving into a new phase, and it's not quite clear yet what that means in terms of home prices.
Driving the news: Homebuilder confidence declined for the sixth straight month in June, dropping to its lowest level in two years, though it's still in positive territory, according to the National Association of Home Builders/Wells Fargo Housing Market Index released Wednesday.
Why it matters: The real estate world is responding to the Federal Reserve's rate hikes. Mortgage rates are skyrocketing — the 30-year is now hovering around 6%, per Mortgage News Daily — and discouraging home buyers, especially first-timers.
- "You're seeing a changing housing market," said Fed chair Jerome Powell at the press conference Wednesday.
Zoom out: Homebuilders ramped up to respond to the pandemic-driven demand, and right now there's a big backlog of unfinished single-family homes — 815,000 units under construction, according to census data, a number last seen during the 2006 boom.
- The buildup is partly due to supply chain issues slowing down the process. Where pre-COVID it took about six to seven months to build a home — now it could be close to 10.
- The uncertainty for builders: What happens with these homes as they come on the market in the current high-inflation, high-rate environment? There's going to be some "margin compression," is how Dustin Jalbert, a senior economist at Fastmarkets RISI, puts it.
- The new mood means builders will likely slow down. "Affordability is a real challenge here for the market, and so the writing's on the wall now," Jalbert says.
What to watch: Prices. As Powell noted Wednesday, the inventory of finished homes is still pretty small relative to demand, so home prices might keep going up for a while. "It's a complicated situation," he added.