Slowdown in Construction? Blame Rising Rates

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The slowdown in new construction orders last quarter and in July can be mostly attributed to rising mortgage rates, The Wall Street Journal reported. The 30-year fixed-rate mortgage has gone from a 3.59 percent average in mid-May to 4.39 percent this week. 

“Several builders, notably those that cater at least partly to first-time buyers, saw a slowing or a falloff in sales contracts last quarter,” The Wall Street Journal reported.  

PulteGroup reported a 12 percent decline in new-home orders during that time, while Beazer Homes USA said it saw a decline of 11.2 percent. Still, some builders say they don’t foresee having to offer concessions, such as paying down interest rates for buyers, to increase sales. 

“I just don’t feel like we have to chase the activity with incentives,” said Beazer CEO Allan Merrill. 

Beazer, the eighth-largest home builder, reported a total revenue of $314.4 million for its fiscal third quarter — a 23.5 percent increase from the same quarter a year ago. Some home builders have reported double-digit percentage gains in home prices this year, with Beazer clocking an 11.7 percent gain in average prices last quarter, averaging $253,800.

Merrill said that a rise of 1 percentage point in interest rates can increase a monthly payment on an average Beazer home by $150 per month, or about 10 percent. 

“Homeownership is still cheap in relation to incomes and rent in all of our markets,” Merrill said on a recent conference call with analysts. “But it isn’t as cheap as it was six months ago. And it has moved quickly enough that we’re experiencing a bit of softness in demand and resistance to further rapid price increases.”

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