Homebuilder sentiment drops for fourth straight month, as rising rates push housing to ‘an inflection point’

A contractor uses a hammer while working on townhouse under construction at the PulteGroup Metro housing development in Milpitas, California.

The nation's homebuilders are being hurt by rising mortgage rates, as already pricey new construction becomes even less affordable.

According to the National Association of Home Builders/Wells Fargo Housing Market Index, builder confidence in the market for new single-family homes fell in April. The index fell for the fourth month in a row in April, to 83, but any reading above 50 is considered positive sentiment.

Current sales conditions fell 2 points to 85. Sales expectations in the next six months increased 3 points after a 10-point drop in March.

Despite low existing inventory, builders report sales traffic and current sales conditions have declined to their lowest points since last summer as a sharp jump in mortgage rates and persistent supply chain disruptions continue to unsettle the housing market.

At the beginning of March, the average rate on the 30-year fixed mortgage was 3.90%, but is now up to 5.15%, according to Mortgage News Daily. That is the highest rate in a decade. The yield on the U.S. 10-year Treasury has been on the rise, but is also being impacted as the Federal Reserve pulls out of the mortgage-backed bond market.

High prices for both new and existing homes are caused by elevated mortgage rates. In February, the median price of a new home was up over 10% from the previous year.

Robert Dietz, NAHB Chief Economist, said that the housing market faces an inflection point due to an unexpectedly quick rise in interest rates, rising home prices and escalating material costs.

On a three-month moving average, builder sentiment in the Northeast rose 1 point to a reading of 72. In the Midwest it fell 3 points to 69, in the South it fell 2 points to 82, and in the West it fell 1 point to 89.