U.S. housing faces longer descent to basement

Beazer Homes USA

22/11/2022 14:08

(The author is a Reuters Breakingviews columnist.  The opinions
expressed are his own.)
    By Ben Winck
       NEW YORK, Nov 22 (Reuters Breakingviews) - The U.S.
housing market is destined to keep sliding. The highest mortgage
rates in 15 years have stifled demand, leading the pace of
existing home sales to slow 31% since January. An influx of new
supply should depress prices from pandemic-era highs, but
affordability will be squeezed well into 2023. 
    Hot markets are cooling off. House prices in Phoenix, for
example, have fallen 8% since June, per S&P CoreLogic
Case-Shiller data. The national average has dipped only 1.5%
over the same span, however, and sits 13% higher than a year
ago. 
    Some fresh inventory is appearing, with new home supply
rising to 462,000 in October, according to the latest Census
Bureau report. Such additions should help bring prices down, but
not enough to swing the equilibrium.
    Pricey loans are spooking buyers. The average 30-year
mortgage costs 6.6%, more than twice what it did in January,
ballooning this year’s typical monthly mortgage payment to
$2,300 from $1,500. And even though economists broadly expect
the U.S. Federal Reserve to slow the rate of interest rate
hikes, government-backed mortgage buyer Freddie Mac reckons that
U.S. home loans will cost about 6.4% through 2023.  
    Homebuilder D.R. Horton  DHI.N , whose stock price has
recovered a bit lately but is down 24% in 2022, warned earlier
this month that its bottom line would suffer because of
discounts used to attract wary buyers. Rival Beazer Homes USA
 BZH.N  offered a similar outlook, with boss Allan Merrill
saying increased incentives would offset gains from lower
material costs. 
    With existing owners locked into lower mortgage rates,
they’re unlikely to put their homes up for sale, curbing supply.
Builders are also changing their plans to capitalize on renters
putting off buying a house. Apartment construction has
accelerated 11% year-to-date, while new single-family home
construction has slowed 26%.  
    The median new U.S. home sold for about $471,000 in
September. For a buyer to keep mortgage payments at $1,500 a
month after paying 20% upfront and borrowing the rest for 30
years at 6.4%, the price would have to drop 36%. It’s a crude
calculation, but it nevertheless points the market in a clear
direction.  
    Follow @BenWinck on Twitter
    CONTEXT NEWS
    Sales of existing U.S. homes slowed to a seasonally adjusted
annual rate of 4.4 million units in October, according to data
released on Nov. 17 by the National Association of Realtors. The
median selling price for previously owned homes rose 6.6% from a
year earlier, easing from the previous month’s 8% year-over-year
gain. 
    Housing starts for single-family homes decelerated to a
seasonally adjusted annual rate of 855,000 units in October, the
Census Bureau said on Nov. 18. Starts for homes in buildings of
five apartments or more eased to a rate of 556,000 units. 
 (Editing by Jeffrey Goldfarb and Sharon Lam)
 ((For previous columns by the author, Reuters customers can
click on  WINCK/ 
SIGN UP FOR BREAKINGVIEWS EMAIL ALERTS https://bit.ly/BVsubscribe
 |ben.winck@thomsonreuters.com; Reuters Messaging:
ben.winck.thomsonreuters.com@reuters.net))