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Latest Housing Blow: Homebuilder Confidence Slips

'The housing market is facing growing challenges,' says National Association of Home Builders Chief Economist Robert Dietz.
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Soaring home prices and mortgage rates, along with a lack of home inventory, have made life difficult for prospective home buyers.

Here’s another negative development. The National Association of Home Builders Housing Market Index fell eight points to 69 in May.

The index measures builder confidence in the market for newly built single-family homes. It’s the fifth straight month of decline for the Index, taking it to the lowest level since June 2020.

“The housing market is facing growing challenges,” NAHB Chief Economist Robert Dietz said in a statement. “Building-material costs are up 19% from a year ago, and in less than three months mortgage rates have surged to a 12-year high.”

So, “based on current affordability conditions, less than 50% of new and existing home sales are affordable for a typical family,” he said. “Entry-level and first-time home buyers are especially bearing the brunt of this rapid rise in mortgage rates.”

The 30-year fixed-rate mortgage averaged 5.3% in the week ended May 12, the highest since July 2009, according to housing agency Freddie Mac. That compares with 5.27% a week earlier and 2.94% a year earlier.

This means a year ago, home buyers were paying $294 in annual interest on every $10,000 of their mortgage loan, compared with $530 now. That’s an 80% increase.

“The runup of mortgage rates since the beginning of the year has the same impact on affordability as an increase in home prices of more than 20%,” Greg McBride, chief financial analyst at Bankrate.com, told Bloomberg.

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The mortgage-rate increase, of course, stems from rampant inflation, which is pushing bond yields higher and forcing the Federal Reserve to raise interest rates.

“In the months ahead, we expect monetary policy and inflation to discourage many consumers, weakening purchase demand and decelerating home price growth,” Sam Khater, Freddie Mac’s chief economist, said in a statement.

As for pricing, the Case-Shiller Home Price index jumped 19.8% in the 12 months through February.

Meanwhile, housing market woes apparently haven’t hurt home-improvement titan Home Depot  (HD) - Get Home Depot Inc. (The) Report much. That’s because some building is going on, and people who already have homes are doing renovations.

The company said May 17 that earnings per share rose 6% in the quarter ended May 1 from a year ago, and revenue gained 3.8%.

The earnings picture was mixed at Home Depot’s competitor, Lowe’s  (LOW) - Get Lowe's Companies Inc. Report. For the quarter ended April 29, it reported a 9% gain in earnings per share from a year ago, but a 3% dip in revenue. 

Sales in the quarter "were in line with our expectations, excluding our outdoor seasonal categories," which were hurt by unseasonably cold weather in April, Chairman, President and Chief Executive Marvin Ellison said in a statement.

"Now that's spring has finally arrived, we are pleased with the improved sales trends we are seeing in May."