- High housing prices and a nationwide shortage are preventing millennials from entering the housing market.
- Home builders are facing challenges due to rising material and loan costs.
- Shares of leading US home builders have dropped since July.
- Mortgage rates have reached their highest point in years, leading to a decline in applications for fixed-rate mortgages.
- Existing home sales have fallen to their lowest levels since 2010, while new home sales initially increased but have now dropped due to inflation and rising construction costs.
- Major home builders like Lennar, DR Horton, NVR, and PulteGroup have seen significant drops in their stock prices.
- Experts believe that demand needs to improve and credit needs to be less restrictive for a sustained turnaround in the housing market.
- Prospective homebuyers may have to wait for mortgage rates to decrease, but home prices are predicted to continue increasing.
According to a Financial Times analysis, the US housing market is facing a dangerous cycle. Millennials are struggling to enter the market due to the high housing prices caused by a nationwide shortage. On the other hand, home builders are unable to construct more homes due to skyrocketing material and loan costs. As a result, shares of leading US home builders have seen a sharp decline since July, indicating the challenges facing the industry. These difficulties in the housing market have been further exacerbated by rising mortgage rates, which hit the highest point last week since the Y2K panic. The mortgage rates, now at 7.79%, have discouraged potential homeowners from applying for fixed-rate mortgages, resulting in the lowest point for such applications since 1995.
While existing home sales experienced a decline in September, new home sales initially saw an increase of over 12% month-over-month, according to the Census Bureau. Additionally, construction starts on new single-family homes rose by 9%. However, the new-home mini-boom quickly faded by October. Construction costs started to inflate, causing a significant increase in expenses and leading to a decrease in homebuilding confidence, which reached its lowest point of the year, according to the National Association of Home Builders. This volatile sentiment has affected major home builders such as Lennar, DR Horton, NVR, and PulteGroup. All of these companies’ stocks have seen drops ranging from 16% to 86% year-to-date.
Financial market economist Oren Klachkin suggests that home builders will not be motivated to start new projects until the demand improves and credit becomes less restrictive. Despite the temporary relief provided by an expected decrease in mortgage rates, experts predict that home prices will continue to rise, making it even more challenging for prospective homebuyers to enter the market. The National Association of Realtors predicts a decrease in the 30-year fixed mortgage rate to 6% by the end of 2024. On the other hand, Zillow expects home prices to increase by nearly 5% next year, adding to the hurdles faced by those looking to purchase a home.
In conclusion, the US housing market is facing significant challenges that are impacting both millennials and home builders. The high housing prices and shortage of available homes are preventing millennials from entering the market, while rising material and loan costs are hindering home builders’ ability to construct new homes. These issues have resulted in stock drops for major home builders and a decline in applications for fixed-rate mortgages. Prospective homebuyers may have to wait for mortgage rates to decrease, but the predicted increase in home prices will continue to pose a barrier to entry.