By Geoffrey Smith
Investing.com -- Conditions in the U.S. housing market cooled further in the latest month, as higher borrowing rates and poor affordability metrics led to the sharpest decline in a key industry gauge since June 2020. The National Association of Home Builders said its index of housing market activity fell to 49 in August from 55 in July.
Of the index’s three components, Current sales conditions dropped seven points to 57, sales expectations in the next six months declined two points to 47 and traffic of prospective buyers fell five points to 32, reflecting the fact that the surge in house prices over the last two years has made home ownership unaffordable for many.
With the exception of the start of the pandemic, the index’s drop was the eighth in a row and the sharpest since 2014.
“Tighter monetary policy from the Federal Reserve and persistently elevated construction costs have brought on a housing recession,” said NAHB Chief Economist Robert Dietz. He added that the total volume of single-family housing starts is now on track to fall overall in 2022, for the first time since 2011 – albeit that’s a decline from record levels during 2021.
“However,” Dietz added, “as signs grow that the rate of inflation is near peaking, long-term interest rates have stabilized, which will provide some stability for the demand-side of the market in the coming months.”
Since the start of the year, the Mortgage Bankers Association’s reference 30-year loan rate had risen to a peak just under 6% in June, before steadying to stand at 5.47% last week.
The NAHB's report was the second business survey of the day to show a sudden acceleration in the deterioration of business activity. Earlier, the New York Federal Reserve's Empire State Manufacturing index had plunged due largely to a steep drop in new orders.