Is the U.S. in a Housing Recession?
August 16, 2022
Sentiment among the nation’s homebuilders fell into negative territory in August, as builders and buyers alike struggle with higher costs.
The National Association of Home Builders/Wells Fargo Housing Market Index declined for the eighth consecutive month in August, dropping 6 points to 49. A reading above 50 is considered positive. Aside from a brief plunge at the start of the coronavirus pandemic, the index has not been in negative territory since June 2014.
In a statement, NAHB Chief Economist Robert Dietz blamed tighter monetary policy from the Federal Reserve and persistently elevated construction costs for bringing about a “housing recession.”
The NAHB predicts that single-family housing starts, meaning construction of new homes, will decline in 2022, the first such decline since 2011. Housing starts in July declined nearly 10%, far more than expected.
In another concerning sign for sentiment, 19% of respondents to the index’s survey component said they had reduced prices the past month to help boost sales or at least limit cancellations, with the median price reduction at roughly 5%.
Despite attempts to stop cancellations, 17.6% of builder contracts fell through in July, more than double the 7.5% that were canceled in July 2021, according to data from John Burns Real Estate Consulting.
Buyers are canceling because they either no longer qualify for mortgages at today’s higher rates or they are simply walking away of their own accord because they are concerned about inflation or worry that home values may fall.
According to the National Association of Realtors, housing affordability is at its worst level in 33 years amid higher mortgage rates and record price growth.