Consumer sentiment regarding the housing market fell to a record low as mortgage rates rise and make homes much less affordable.
About 4 out of every 5 consumers describe home buying conditions as bad, according to the University of Michigan’s consumer sentiment survey for this month. That is the highest number recorded by the survey, which goes back to 1978.
The results are yet another indicator that the housing market is getting battered by the Federal Reserve’s historic efforts to hike interest rates to drive down explosive inflation quickly and aggressively.
Mortgage rates have been on an upward trajectory since just before the Fed started jacking up its interest rate target (which is a different, very short-term rate) in March. At the beginning of this year, mortgage rates were hovering at an ultra-low 3%, fueling a massive housing boom and sending home buyers into a frenzy.
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While mortgage rates have dropped a bit in recent days, as of Tuesday, the average 30-year fixed-rate mortgage popped to 6.64%, up a staggering 3.19 percentage points from a year before, according to Mortgage News Daily.
The rising rates, coupled with just about everything else being more expensive for consumers as inflation outpaces wage gains, have caused the red-hot housing market of last year to freeze and turn cool quickly.
Sales of existing homes have fallen for a ninth straight month and are now at the lowest level since early in the pandemic. Existing-home sales plunged by 5.9% in October to a seasonally adjusted annual rate of 4.43 million, according to a report by the National Association of Realtors released Friday. Sales were down nearly 30% from a year ago.
On Tuesday, it was revealed that investor home purchases also plummeted in the third quarter, a sign that not only are traditional buyers pulling back given rising mortgage rates and high prices, but so are the major firms with huge amounts of capital.
Those firms bought some 66,000 homes during the third quarter, according to data collected by Redfin. During the same quarter a year ago, companies purchased a whopping 94,000 homes, meaning there has been a decline of about 30% from just last year.
“It’s unlikely that investors will return to the market in a big way anytime soon. Home prices would need to fall significantly for that to happen,” said Redfin senior economist Sheharyar Bokhari. “This means that regular buyers who are still in the market are no longer facing fierce competition from hordes of cash-rich investors like they were last year.”
The drop in sales has also dented production. Housing starts, which measure the annualized change in the number of new residential buildings that began construction, have also declined.
Housing starts fell 4.2% last month to an annual rate of 1.425 million units, according to data from the Commerce Department released this week.
“Even as days on the market are lengthening, overall housing inventory still remains near historic lows. New listings are actually lower compared to the same period a year ago. That means once the gate opens a bit for home buyers, we could again face a housing shortage,” said Yun.
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Home-builder confidence has additionally continued to tumble this year. Confidence fell for the 11th straight month in a row this month, according to data from the NAHB/Wells Fargo Housing Market Index released last week.
“With the housing sector in a recession, the Biden administration and new Congress must turn their focus to policies that lower the cost of building and allow the nation’s home builders to expand housing production,” said NAHB Chairman Jerry Konter, a home builder and developer from Georgia.
