Cooldown Coming In Housing Market


Rising mortgage rates may not have brought the housing market to a halt just yet, but experts are predicting a cooldown that will come in waves and hit different areas of the country at different times.

As home prices begin to level off, the 30-year mortgage rate is moving between 5% and 6%. At the same time, consumer confidence is dwindling, and economic statistics indicate the housing industry is cooling after its frenzied surge during the Covid-19 pandemic.

As a result, several Wall Street analysts are revising their outlooks for the homebuilding sector and downgrading some equities. 

“The housing market faces both demand-side and supply-side challenges,” Robert Dietz, chief economist at the NAHB, said in a statement. “Residential construction material costs are up 19% year-over-year with cost increases for various building inputs.”

“On the demand-side of the market, the increase for mortgage rates for the first half of 2022 has priced out a significant number of prospective home buyers,” Dietz said.

Homebuilders are feeling the pinch. In recent months, a significant jump in mortgage rates has hampered affordability and slowed house sales.

Meanwhile, material lead times remain lengthy, expenses remain high, and the workforce remains scarce.

What’s going on behind the scenes?

The housing market is under pressure from inflation, borrowing rates, rising material costs, and supply limits. In May, single-family house building plummeted 9.2 percent, while apartment starts fell 26.8 percent.

Rising borrowing prices and increasing inflation have damaged investor faith in the resilience of the pandemic-driven housing market. The Federal Reserve has announced a three-quarter point rate rise, the largest since 1994.

The S&P Supercomposite Homebuilders Index fell 14 percent, the most since April 2020, as market fears about the possibility of a US recession grew amid rising mortgage rates and falling home starts.

Similarly, the stocks of additional, prominent house builders, such as Lennar Corp (NYSE: LEN), Toll Brothers (NYSE: TOL), KB Home (NYSE: KBH), Pulte Group (NYSE: PHM), and D.R. Horton (NYSE: DHI), declined by 3.9 percent, 4.33 percent, and 5.47 percent, respectively.

Still, the job market remains strong but looks more difficult for the existing-home market, whereas homebuilders can muddle through.

“We still see positive long-term drivers to new home demand including a demographic tailwind and a shortage of homes following a decade of underbuilding, but the urgency to buy has evaporated and we expect a pause in the housing market that could stretch into 2023,” Bank of America analyst Rafe Jadrosich said in an article published on


Homeowners sell for various reasons, including the inability or unwillingness to continue paying their mortgage, the desire to capitalize on increased prices, or simply the desire to relocate to explore other possibilities.

Mortgage interest rates have shifted the equation. Homeowners may delay or decline a sale to wait for better prices or be hesitant to sell and acquire a new property at a higher mortgage rate.

Even as recently as May, home builders were still restricting the number of homes they would sell for strategic reasons. On their earnings calls this week, Lennar stated it had 250 houses available for sale at the end of May, while KB Home had 69. Builders will catch up on output during the next few months, and mortgage rates will either climb or fall.

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