US in 'housing recession,' builders group warns

Homebuilder confidence fell for an eighth straight month, and the country is now in the throes of a “housing recession” brought on by the Federal Reserve’s efforts to tame inflation, according to the National Association of Home Builders.

The NAHB/Wells Fargo housing market index released Monday found that builder confidence in the market for newly built single-family homes plunged 6 points this month to fall into negative territory for the first time since a brief period at the start of the pandemic.

The eight straight months of falling homebuilder confidence is the longest such period of decline since the housing market crash more than a decade ago.

“Tighter monetary policy from the Federal Reserve and persistently elevated construction costs have brought on a housing recession,” said NAHB Chief Economist Robert Dietz. “The total volume of single-family starts will post a decline in 2022, the first such decrease since 2011.”

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About 1 in 5 of the homebuilders surveyed reported slashing prices in the last month to limit cancellations or increase sales, while nearly 70% blamed rising interest rates for declines in housing demand.

The Fed has been raising interest rates aggressively in order to tame the country’s explosive inflation.

Last month, the central bank announced that it would increase its interest rate target by three-quarters of a percentage point, a historically large increase. That follows an identical 75 basis point hike in June. The Fed usually hikes rates by just a quarter of a percentage point, so the back-to-back increases were equivalent to six standard rate hikes in merely two months

As a result, mortgage rates, which were at ultralow levels during the pandemic when the Fed chopped interest rates to near-zero, have risen quickly. The average 30-year fixed-rate mortgage is now at 5.22%, up 2.35 percentage points from a year before, according to Freddie Mac.

House prices, though, have continued rising. The median existing-home sales price rose to $416,000, up 13.4% for the 12 months ending in June. The hike marks 124 consecutive months of year-over-year price increases, the longest recorded streak, according to a report by the National Association of Realtors released Wednesday.

The July report on existing home sales will be released later this week and is expected to show that they tumbled. New numbers for housing starts, which measure the annualized change in the number of new residential buildings that began construction, are also set to be released this week and are forecast to have declined.

There are fears that the Fed’s action to combat inflation, which many economists see as being too far behind the curve, will result in the U.S. economy entering into a broad-based recession.

Some already think the U.S. is in a recession given that gross domestic product has declined in the past two consecutive quarters, which many economists take as a sign of recessionary conditions.

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Government officials and economists use recession designations provided by the National Bureau of Economic Research, a private academic group. The bureau doesn’t provide a narrow statutory definition to declare a recession. Rather, it relies on the judgment of a group of economists.

The group broadly defines a recession as “a significant decline in economic activity that is spread across the economy and that lasts more than a few months.”

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