Slowdown in homebuilding linked to higher mortgage, interest rates

According to an economics expert at Marquette University, high mortgage rates and interest rates have contributed to the recent decline in new home construction in Wisconsin.

David Clark is Professor of Economics and Executive Associate Dean in the University’s College of Business Administration. In a recent interview, he explained that rising mortgage rates are affecting construction loans and related building activity.

Clark said the national average for a 30-year fixed-rate mortgage fell from 5.52 percent in June to 5.41 percent in July. But it is well above the 2.87 per cent rate since July 2021.

“Those higher mortgage rates, and those higher rates that are going to be reflected on construction loans as well, that’s definitely something that will impact people pulling permits,” he told WisBusiness.com. “I think that’s more likely to be the primary driving factor than other things that can influence the decision to take out a loan.”

And he said federal officials are raising short-term interest rates in hopes of spurring inflation, which recently peaked at 9.1 percent earlier this summer.

A recent report by the Wisconsin Builders Association found the number of new home construction permits fell 24 percent in the second quarter of this year. The report shows that a total of 3,328 permits were issued between April 1 and June 30, compared to 4,382 during the same period of 2021.

Clark said it is unclear whether the United States is currently in recession, as early GDP data showed a steady decline in the second quarter but the labor market remained strong. Also, the National Bureau of Economic Research — which officially decides that a recession is occurring — hasn’t weighed in yet, he noted.

“It may well be the case that we are in a recession and that will eventually have an impact, but I think it is more likely, given that second quarter data from housing permits, and closing… The reason is high mortgage rates and interest rates,” he said.

According to Clarke, NBER will wait until the revised second quarter GDP figures are available before taking a call on the slowdown. The agency also incorporates other factors such as industrial production and the labor market.

“My guess is, if we don’t hear about it in September, it will be after the mid-term election in November … They try to avoid appearing political in their decisions,” he said.

View the Wisconsin Builders Association report: https://www.wisbusiness.com/2022/wisconsin-builders-association-homebuild-sees-24-percent-decrease/

Slowdown in homebuilding linked to higher mortgage, interest rates

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