Home Builders Warn Collapse Is ‘Unsustainable’—And Prices Could Tumble Another 20%

Builder confidence in the market for new homes dropped 8 points to 38—just half the level of six months ago and its lowest level since 2012—excluding the historic plunge at the start of the pandemic in 2020, according to the NAHB/Wells Fargo Housing Market Index released Tuesday.

The NAHB called the ongoing collapse of confidence further evidence that rising interest rates, building material bottlenecks and still-elevated home prices continue to weaken the housing market, noting traffic of prospective buyers has also slumped to the lowest level in a decade, while the outlook for sales also worsened.

In a statement, the association’s chair, Jerry Konter, said skyrocketing mortgage rates have created an “unhealthy and unsustainable situation,” noting this year will likely mark the first since 2011 to see a decline in the number of housing starts, or homes on which construction starts.

Others are similarly bearish: In emailed comments, Pantheon Macro chief economist Ian Shepherdson said the “disastrous” figures make it clear that the reported jump in new home sales last month “was much more noise” than indicative of a turnaround—especially as the latest surge in mortgage rates (to nearly 7%) threatens to further tank demand.

As a result, Shepherdson predicts construction and new home sales will continue to fall until early next year—pushing prices down by about 15% to 20%; the median price is already down to $436,800 from a record $466,300 this summer.

Wells Fargo economist Charlie Dougherty agrees, projecting median new home prices will fall nearly 7% next year with “disproportionate” losses in some housing markets that were particularly booming during the pandemic.