Home Builders Warn Collapse Is ‘Unsustainable’—And Prices Could Tumble Another 20%

Home builder confidence plunged for a tenth straight month in October as rising interest rates continued to weaken housing demand—prompting economists to warn an unexpected rise in new home sales last month may be short-lived and prices may be on the brink of collapse, the National Association of Home Builders reported Tuesday.

CRUCIAL QUOTE

“While some analysts have suggested that the housing market is now more balanced, the truth is that the homeownership rate will decline in the quarters ahead as higher interest rates and ongoing elevated construction costs continue to price out a large number of prospective buyers,” says NAHB chief economist Robert Dietz.

KEY BACKGROUND

Skyrocketing prices have forced central banks around the world to reverse pandemic-era policy measures meant to bolster markets—and the Federal Reserve’s rate hikes hit the formerly booming housing market particularly hard. New home sales plunged to a six-year low this summer, and plunging mortgage applications suggest the collapse will only get worse. Fed Chair Jerome Powell has several times alluded to the housing market’s “complicated situation” this summer, saying prices will cool as mortgage rates normalize at higher levels after remaining historically low during the pandemic.

WHAT TO WATCH FOR

The home builder release kicks off a busy week for new data on the housing market. On Wednesday, the Census Department is slated to release its monthly report on housing starts, and the National Association of Realtors on Thursday will report existing home sales for last month.