The U.S. needs more homes, but builders may be slowing construction
Rising interest rates and record home prices are making it impossible for many Americans to buy a house, and that's making builders less confident that if they build a home they'll be able to sell it.
That could be a very big problem because the main reason home prices have risen so much in recent years is that the country is in the midst of a historic housing shortage.
A new poll conducted by the National Association of Home Builders shows builder confidence in the market for new single-family homes is at its lowest level since June 2020 after six straight months of decline, "a clear sign of a slowing housing market in a high inflation, slow growth economic environment," NAHB Chairman Jerry Konter said.
The poll measures builder perceptions of current and future single-family home sales, and the traffic of prospective buyers. All three categories posted declines in the latest monthly data with buyer traffic falling most sharply, a sign that homebuyers — especially first-time ones — are giving up.
The U.S. is about 4 million homes short of what's needed to keep up with demand, according to Freddie Mac. After the housing bubble burst, many builders went out of business and construction slowed. That lack of supply has been pushing home prices higher in recent years.
During the pandemic, low mortgage rates helped drive prices up even more sharply — between 30-40% in just the past two years depending on which price index you look at. Meanwhile, both the pandemic and the war in Ukraine have shaken up supply chains. Costs for residential building materials are up 19% year-over-year, NAHB's chief economist Robert Dietz said in a recent release.
Now, with the Fed trying to fight the worst inflation in 40 years, mortgage rates have gone up dramatically from below 3% to more than 6%. All of these factors are adding up to a market where the monthly payment it takes to buy the median priced home in the U.S. has become about twice as expensive in just the last two years. Millions of would-be homebuyers are priced out.
All this has many people wondering whether we might be in another housing bubble that's about to burst. But most economists say while prices can't keep rising like they have and might decline in some markets, they don't expect a huge collapse in prices similar to the one that caused a national and global recession in 2008.
Still, there is a great imbalance in the housing market that's created a serious problem. Economists say we need millions more homes, especially as millennials — the largest generation — are trying to buy houses, many for the first time. But homebuilders are getting worried that if they build them, people won't buy them, which could lead to an even bigger dip in the number of homes in the U.S.
Konter, the NAHB chairman, said government policies could help alleviate the problems the market is experiencing.
"Government officials need to enact policies that will support the supply-side of the housing market as costs continue to climb," he said.
Konter wants the U.S. to ban lumber imports from Russia and increase timber production from federal land. He also wants to make it easier to import lumber from Canada by suspending tariffs, and for the government to promote and fund job training programs in home building to ease a shortage in construction workers.