A devastating combination of circumstances — rising mortgage rates, rising construction costs, and low inventory levels — has hurt the housing market this year.
“We firmly believe we’re in a housing slump right now,” Jerry Howard, CEO of the National Association of Home Builders, told Yahoo Finance Live (video above), noting that he is “particularly interested in a quarter of first-time homebuyers.”
The percentage of first-time homebuyers has fallen to 26% from 34% just a year ago, according to the National Association of Realtors, while the average age of a first-time buyer has increased to 36 from 33.
“In the first-time homebuyer market, the fact that the cost of construction is still 10% higher than the inflation rate,” Howard said. “So the cost of construction, the cost of capital, they all play into that.”
Building materials that go into building homes, including wood, steel products and precast concrete, increased more than 19% year-on-year in April; Prices for other materials such as asphalt and water pipes jumped 30% in 2022.
“Different from 2008”
Although home sales fell for the 10th straight month last month, Howard said there is a difference between a slowdown in the housing market today and a slowdown in 2008.
“The big difference is in 2008 we had oversupply,” Howard said. “Here, we don’t have an oversupply. In fact, we have an undersupply.”
For example, the unsold inventory of existing homes shown has been on display for 3.3 months at the current pace of sales, according to the National Association of Realtors. The 6-month supply is considered a balanced market.
“I don’t think people should panic here,” Howard said, explaining today’s inventory shortage compared to the market crash of 2008. “And that will limit lower prices from falling.”
Howard believes the market will begin to recover in early 2024 if the Federal Reserve lowers its short-term benchmark interest rate and eases the global supply chain freeze.
“I think what will lead to this shift will be lower interest rates,” Howard said. “And I think we will eventually realign our supply chain, which will help bring down construction costs.”
Beyond monetary policies and the logistics of building materials, Howard noted that changes in government policy could also help tame home unaffordability in the future.
“I also think that policy makers are starting to realize that a lot of the policies that we have at the local level, state level and federal level add to the cost of housing,” Howard said. “And I think they will eventually do something about it.”
Rebecca Yahoo Finance.
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