US housing market could be headed for ‘meltdown’: economist

The US housing market could be on the verge of a “meltdown,” an economist warned following this week’s release of data showing a collapse in home builder confidence in July.

US home builder confidence plummeted 12 points to 55 in July, according to the latest data from the National Association of Home Builders/Wells Fargo Housing Market Index released Monday.

Sentiment has declined for seven straight months and is now at its lowest level since May 2020 — with more trouble potentially ahead for homeowners.

“Homebuilders have been in denial about the extent of the drop in demand, despite mortgage applications falling by more than a quarter over the first half of the year, with no end in sight to the decline,” said Ian Shepherdson, chief economist at Pantheon Macroeconomics. “Now, they are acknowledging reality.”

“Pretty soon, anyone who has bought a home in recent months will be sitting on a loss,” Shepherdson added.

Forbes and Marketwatch were first to report on Shepherdson’s remarks.

Mortgage rates have surged alongside the Fed’s benchmark interest rate.
Christopher Sadowski

The National Association of Home Builders noted confidence within the housing market has sagged due to the impact of high inflation and rising interest rates that have resulted in “dramatically slowing sales and buyer traffic.”

The mortgage rates have compounded difficulties from would-be buyers who have to balance long-term loan commitments against exorbitantly high home prices that surged during the COVID-19 pandemic.

The survey’s July reading came in below expectations for all 31 economists polled by Reuters. The 12-point month-over-month drop was the second-largest on record since 1985.

Home under construction
Home builder sentiment plunged 12 points in July.
Getty Images

NAHB chairman Jerry Konter said 13% of builders who participated in the monthly survey said they’d reduced home prices over the last month to lure buyers.

“Production bottlenecks, rising home building costs and high inflation are causing many builders to halt construction because the cost of land, construction and financing exceeds the market value of the home,” Konter said in a statement alongside the survey results.

Mortgage rates have climbed steadily to their highest level in years on the expectation of tighter borrowing conditions as the Federal Reserve aggressively hikes its benchmark interest rate to combat inflation.

Sold home
Homeowners may be forced to slash prices to lure buyers.
Getty Images
Home under construction
High inflation and rising commodity costs have crushed home builders.
Christopher Sadowski

The average contract interest rate on a 30-year fixed-rate mortgage climbed to 5.51% for the week ending on July 14. The same rate was hovering below 3% one year earlier.

As The Post reported last month, a growing number of economists expect a housing slowdown as interest rates rise in the months ahead — with one expert warning of a “coast to coast” correction that will cause prices to drop in overvalued markets.

Still, experts say the slowdown won’t be as bad as the 2008 housing crisis that emerged when the subprime mortgage market imploded.

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