MNI INTERVIEW: Tough Credit Terms Squeeze US Homebuilding-NAHB

American home prices will keep rising with demand pulling further ahead of supply weighed down by Fed hikes and tougher lending terms from commercial lenders, National Association of Home Builders chief forecaster Danushka Nanayakkara-Skillington told MNI.

"We expect healthy demand from Millennials going for the next few years. It's the fact that we just don't have enough housing for them to support it. That's what is keeping house prices higher," she said in an interview.

Chair Jerome Powell said Wednesday after raising interest rates to the highest in more than two decades that home prices are nearing their peak but the market could have “a ways to go” before balancing out. The NAHB expects one more 25bp increase at the next Fed decision to a peak range of 5.5% to 5.75%. (See: MNI INTERVIEW: Powell Opens Door To End Of Fed Hikes-Weinberg)

Higher rates and tougher lending terms will further squeeze a housing market where inventories are already half of normal levels, Nanayakkara-Skillington said.

"The biggest thing for the builders would be lending. Lending standards have gotten much stricter and tighter since the banks collapsed earlier this year," she said. Builders are now paying double on their Acquisition Development and Construction loans, with rates around 11% or 12%.

FED HOLDING A WHILE

Potential homebuyers can also expect elevated mortgage rates according to the NAHB, staying around 7% before slowly declining to 6% at the end of 2024 and towards 5% in 2025. Stubborn mortgage rates are keeping would-be sellers anchored to their homes, lowering the number of homes for sale, driving prices and hampering affordability, she said.

The Fed's "going to hold it for a while," said Nanayakkara-Skillington who is expecting around 1% GDP growth this year and a softer job market.

Homebuilders could use some relief when it comes to finding workers. There is a lack of skilled labor with 366,000 open jobs in construction, adding to other costs such as concrete prices that have doubled and a shortage of power transformers, she noted.

One source of optimism comes from multi-family construction that has done "remarkably well" from a rise in buyers looking for more affordable options, Nanayakkara-Skillington said.

Over half a million multi-family units were built last year, the highest since 1986, though NAHB sees moderation to 480,000 units this year and 400,000 next year. The slowdown "is primarily driven by the higher commercial lending standards and the fact that there are 990,000 apartments in the pipeline," she said.