Does the Government Shutdown Threaten the Real Estate Market?
The real estate market has been one of the strongest pillars of the economy following the credit meltdown of yesteryear. Amid low interest rates and a great deal of intervention from policymakers, home builders in the United States enjoyed a rebound from the depths of the housing bubble collapse. However, the government shutdown is weighing on sentiment.
After climbing higher for four consecutive months earlier this year, the National Association of Home Builders/Wells Fargo’s index of builder confidence declined to 55 in October, compared to 57 in the previous month.
The reading was below expectations of 57. Any reading above 50 indicates that more builders view sales conditions as good rather than poor. In the five years before the Great Recession, the index averaged 54, and hit an all-time low of 8 in early 2009.
“A spike in mortgage interest rates along with the paralysis in Washington that led to the government shutdown and uncertainty regarding the nation’s debt limit have caused builders and consumers to take pause,” said NAHB Chief Economist David Crowe. “However, interest rates remain near historic lows and we don’t expect the level of rates to have a major impact on sales and starts going forward. Once this government impasse is resolved, we expect builder and consumer optimism will bounce back.”
Between the beginning of May and the end of June, the average interest rate for a 30-year fixed-rate mortgage surged from 3.59 percent to 4.68 percent, according to the Mortgage Bankers Association. The most recent report from the organization said the average rate on a 30-year fixed-rate mortgage was 4.46 percent.
The NAHB/Wells Fargo Housing Market Index gauges builder perceptions in three areas of the real estate market, all of which fell 2 points in October. The reading for current sales conditions came in at 58, while sales expectations for the next six months posted a reading of 62. The component gauging buyer traffic was only 44.
The three-month moving averages for regional housing market index scores were mixed across the nation. The West declined one point to 60, while the Northeast dropped three points to 38. The South held steady at 56, and the Midwest managed to post a one-point gain to 64.
“This slight dip in builder sentiment is the result of continuing challenges in the marketplace with regard to the cost and availability of labor and lots and uncertainty in Washington,” said NAHB Chairman Rick Judson.
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