The real estate market has always experienced cyclical fluctuations, but the current dip in new home sales owes some causation to lingering effects of COVID-19, which interrupted supply chains that, in turn, disrupted home construction. When combined with rising mortgage interest rates and increased construction costs, supply chain issues have resulted in a slower market for new home sales. According to an August 2022 report from the U.S. Census, new home sales in July were down 12.6% from the previous month to 511,000 (seasonally adjusted) and more than 29% from one year ago.
“The disappointing sales pace mirrors an ongoing decline in builder sentiment as elevated mortgage rates and higher construction costs are pushing more consumers out of the market, particularly entry-level buyers,” said Jerry Konter, chairman of the National Association of Home Builders (NAHB) and a home builder and developer from Savannah, Ga., in an August 2022 report from the NAHB.
Conversely, house prices are up by slightly more than 8% over 2021. Technically, so is inventory, with a 10.9-month supply of new single-family homes—although not every home on that inventory list is completed, and some have yet to even break ground. Of the 464,000 homes listed in inventory, only 45,000 are ready for occupancy.
With materials shortages and higher prices and interest rates, houses aren’t getting built or selling. This has led the NAHB to declare a recession in the housing market. A housing recession is defined by the National Association of Realtors as declining home sales for six consecutive months.
A slow-moving residential market impacts other industries. For example, a dip in appliance sales typically follows a housing recession. The ripple effect of a stagnant housing market can extend beyond consumer goods to utility contractors and other building trades.
While the S&P Global North American Corporate Credit Mid-year Outlook for homebuilders and developers, published in July 2022, reflects the current “softening” in residential construction, many pundits predict a rebound, thanks to demand for housing outstripping the shortfall of homes, estimated to be between 1 million–4 million.
In addition to ongoing housing demand, other signs of hope for a positive market upswing include stabilization of mortgage interest rates, falling gas prices and slowing inflation. This could keep residential contractors on the job in preparation for changing market conditions.
Header image by paulbr75 / Pixabay.
About The Author
Lori Lovely is an award-winning writer and editor in central Indiana. She writes on technical topics, heavy equipment, automotive, motorsports, energy, water and wastewater, animals, real estate, home improvement, gardening and more. Reach her at: [email protected]