Housing Falls Suddenly

The national housing market took a severe hit from the Federal Reserve’s campaign to limit spending across the economy by rising interest rates, as evidenced by a study released on Tuesday. 

The housing market is reeling from the Fed’s hikes, as evidenced by the precipitous drop in housing starts in April.

The average rate on a 30-year fixed mortgage jumped from slightly over 3% at the beginning of 2022 to over 7% by the end of the year. Following the failure of Silicon Valley Bank, it gradually decreased to its current level of 6.35%.

On Wednesday, the Census Bureau reported a 22.3% drop from April 2022 to April 2023 in the number of new private dwelling units under construction. 

Seasonally adjusted, the annual rate of new building permits in March was 21.1% lower than the rate in April 2022, which is often used as a proxy for future building activity.

PNC senior economist Kurt Rankin believes the housing market is bottoming out because of low inventory and the opportunities it presents to builders.

As the central bank has tightened, the average new home mortgage payment has skyrocketed over the previous three years.

The Mortgage Bankers Association reports that the typical monthly payment was close to $2,100 in March. The typical payment in April 2020 was $1,128, a considerable increase of over 85%.

Rising mortgage rates have made homeownership unaffordable for many and stifled housing market activity over the past year.

However, there are indicators that the housing market may be leveling off. The builder confidence index released this week by the National Association of Home Builders saw a 5-point increase to 50, marking the first time the indicator has been in positive territory since July.

Most investors and economists anticipate the Federal Reserve to cease increasing at its next meeting in June, even though the Fed stated earlier this month that it was boosting its interest rate objective by a quarter of a percentage point.

The central bank’s key rate is between 5% and 5.25% overnight. The current interest rate is the highest since the beginning of the global financial crisis 2007.