- Home building stocks were down Monday after a dour monthly assessment of the US housing market.
- Tighter Fed monetary policy and elevated construction costs have brought on a housing recession, the NAHB's chief economist said.
- August buyer traffic registered at 32, the lowest reading since April 2014, according to the NAHB/Wells Fargo housing market survey
Homebuilder stocks slipped Monday as sentiment among construction companies fell to a level indicative of contraction.
Builder confidence in August dropped for the eighth consecutive month, with the National Association of Home Builders/Wells Fargo Housing Market Index down 6 points to 49, the first drop below the break-even mark of 50 since May 2020, when the COVID-19 pandemic was still unfolding.
"Tighter monetary policy from the Federal Reserve and persistently elevated construction costs have brought on a housing recession," NAHB Chief Economist Robert Dietz said in a statement accompanying the release of its monthly report.
Shares of D.R. Horton, the largest homebuilder in the US, fell 0.9%. PulteGroup moved 1% lower. Lennar lost 0.4% and NVR, which runs construction firm Ryan Homes as well as mortgage lending operations, also slipped 0.4%.
The iShares U.S. Home Construction ETF fell 0.7% during Monday's session, and the SPDR S&P Homebuilders ETF was down 0.5%. The exchange-traded funds have lost about 25% and 22%, respectively, during 2022.
The housing market has been under pressure with mortgage rates climbing this year on the back of the Federal Reserve's aggressive round of rate hikes to cool down inflation. The 30-year fixed rate mortgage last week rose 5.22%, rebounding from a dip below 5%, according to Freddie Mac. That key rate hit 5.81% in June and was well above where it was in mid-August a year ago, at around 2.87%.
According to the latest NAHB/Wells Fargo survey, 69% of builders reported higher interest rates as the top factor that's lowering housing demand.
Meanwhile, August buyer traffic registered at 32, the lowest reading since April 2014 with the exception of spring 2020 when the pandemic first hit. That reading was a "troubling sign that consumers are now sitting on the sidelines due to higher housing costs," said the NAHB.
About 1-in-5 home builders, or 19%, reported reducing prices in the past month to boost sales or limit cancellations, with the median price reduction at 5%.
"The total volume of single-family starts will post a decline in 2022, the first such decrease since 2011," said Dietz. "However, as signs grow that the rate of inflation is near peaking, long-term interest rates have stabilized, which will provide some stability for the demand-side of the market in the coming months."
