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‘We’re in a housing recession right now,’ NAHB CEO says

National Association of Homebuilders CEO Jerry Howard joins Yahoo Finance Live to discuss homebuilder confidence, the housing market slowdown, rising mortgage rates, and the outlook for the housing market.

Video Transcript


JULIE HYMAN: What are you hearing from your constituents right now?

JERRY HOWARD: Well, for the last nine months, home builder confidence has been a steady decline from somewhere near the low 80s now down to the mid-40s, meaning it's an unfavorable market. And that's what I'm continuing to hear. The number that came out today, the increase in housing starts, is really a correction off of what was an abysmal record-- or a number the month before, so that's something of a correction.

I looked at it this morning and I thought maybe we're getting some good news. But you analyze it, look at it a little more deeply, it's just a correction. And we're not expecting big things or positive things in housing numbers for a while.

BRAD SMITH: I mean, yeah, when we look across everything from existing homes that are already on the market and the number of bids starting to come down for those homes in the era where we are tracking, of course, some of the rising mortgage rates as well to be able to even pay off that home over an extended period of time. What is the one thing that we should be zeroing in on that you are zeroing in on as you continue to do your analysis to really spell out where there is some softness, but perhaps where also some of the pressures may alleviate in the future?

JERRY HOWARD: Well, you know, first of all, let's make no mistake. We believe we're in a housing recession right now. Absolutely. No-- bottom line, that's it. But this is a housing recession that is caused by policy, not by a lack of demand, not by-- it is by a lack of supply. But the lack of supply is because policies that are in place at the federal level, the state level, and the local level are all policies that suppress housing.

This is something that-- the good news is if policymakers want to end the housing recession, they can do so by changing some policies, policies that impact the regulatory burden that is on home builders, which right now averages roughly 25% to 26% of the cost of a new house. They can make policy changes that improve the supply chain. You were talking about that just a few minutes earlier.

BRAD SMITH: But that's not the goal--

JERRY HOWARD: I talked--

BRAD SMITH: --right now, Jerry. If the goal is more to ensure that the broader economy is able to combat inflation, housing is just one part of what they're trying to tackle more broadly.

JERRY HOWARD: Housing is also the largest sector of the economy. And if you want to-- if you want to flirt with the danger of a serious, long-lasting housing recession, then I think you're flirting with the danger of a serious, long-lasting overall economic downturn.

JULIE HYMAN: Well, if that was the case, I mean, that is not what we're hearing from most economists we're speaking to. They're not concerned about a deep, long-lasting recession. And affordability has remained an issue. And so if you were doing some of the things you propose, would that help bring prices down as well?

JERRY HOWARD: If it costs less to build a house, the builders will take less in profit, absolutely. Absolutely. Well, part of the reason that housing prices have gone up so much is because of the cost of labor, because of the cost of building materials, because of the cost of regulatory compliance. And oh, by the way, now you can add because of the cost of capital.

You've talked about it being a problem at the back end with mortgage rates. It's also a problem at the front end. When builders have to borrow money to buy the lots, borrow money to improve the lots and that interest rate goes up, it's carried on to the consumer. The housing affordability crisis is also a crisis of policy, not so much a crisis of supply and demand.

JULIE HYMAN: And so-- OK. So I think what we can agree on is that nothing is happening in the short term that is changing the trajectory of rates or necessarily of housing policy in various places. I know there are some moves at the margins in terms of increasing supply. So given that, what do you think is going to continue to happen with housing demand and also with pricing right now?

JERRY HOWARD: Well, I think there's going to be a lot of pent-up demand because when you have mortgage rates over 6%, you're pricing a lot of people out of the market. And we think they could go up as high as 6 and 1/4% before it's all over. So that's going to be a problem.

But I really think that the first place to look for any signs of hope is in the midterm elections. If the candidates who are elected in the midterm election are pro-housing candidates and understand the importance of housing, both to our social policy but also to our economic policy, then hopefully they'll start making some of the changes that I'm alluding to.