The holiday season is in full swing, but the housing market isn't looking very cheery. Today, the National Association of Home Builders (NAHB) reported its housing market index fell for the 12th straight month as weakening demand in the face of higher prices and mortgage rates weigh on the market.
The NAHB's index, which measures builder confidence, fell 2 points from November to December, to a reading of 31 points on a scale of 100. At the height of the pandemic housing boom, that number sat at 90. It hasn't fallen this low since COVID-19 shutdowns sent the economy into a short recession that ended in April 2020.
Over the past year, what was a red-hot seller's market has taken a dramatic turn. Last December, buyers were still flooding the market with offers, many fighting to win bidding wars. This year, higher interest rates have tamped down interest in new and used homes, tanking builder confidence. It's reflected in the index, which plunged 53 points in that timeframe.
Looking ahead to the new year, the index might not rise much in the first or second quarter, based on hawkish comments from Federal Reserve officials. Fed policymakers suggested last week that they intend to keep hiking rates until inflation is fully under control. People in the market for a home could see higher mortgage rates as a consequence.
However, that's an intended consequence on the Fed's part. Chair Jerome Powell has warned that the housing market was out of balance before the Fed's recent rate hikes and historically-high interest rates came into play. In the Fed's view, those higher mortgage rates are righting a market that was unsustainable.
The index is just the first metric on the housing market coming out this week. Tomorrow, we'll also get new data on housing permits and construction starts. And on Wednesday, the National Association of Realtors will provide some insight into existing home sales. New home sales data will be released on Friday.
- Taylor
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