Interest rate spike seems to scare off homebuilders
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The spike in interest rates this spring looks to have frightened homebuilders in a big way.
By the numbers: The number of housing units started in May fell 15.4% to an annualized 1.18 million, the Census Bureau said, the lowest reading since the early days of the pandemic and far below forecasters' expectations.
- The steepest drop was in multifamily housing construction. Single-family housing starts fell a more modest 1.9%.
- The number of permits issued for new housing units also fell, by 0.7%, to an annualized 1.41 million.
State of play: The average rate on a 30-year fixed-rate mortgage fell under 6% in late February before the Iran war caused a bond market plunge and a corresponding rise in longer-term rates.
- On May 19, the average rate hit a recent high of 6.75%, according to Mortgage News Daily.
- Homebuilders face the prospect that buyers will be scarce amid both higher mortgage rates and higher construction loan rates used to fund building activity.
- A survey of homebuilder confidence showed a decline to 35 from 37 in June, per the National Association of Homebuilders. That's well below the dividing line between a good or poor environment, which is 50.
What they're saying: "The monthly numbers are volatile, but that said, we normally don't see this drastic of a decline in housing starts," Jeffrey Roach, chief economist at LPL Financial, wrote in a note.
- Low levels of single-family home completions "affirm the thesis that policy needs to address the supply side of the housing equation to successfully deal with the affordability crisis in the U.S.," he added.
