Higher loan rates make it more difficult for individual homeowners to buy homes as well as developers to build homes. “Builders expect home sales and the housing market in general to slow down,” said analyst Rose Quint, National Association of Home Builders (NAHB), due to rising construction and borrowing costs. “Interest rates hit from both ends. At the builder’s side it’s on acquisition, development, and construction financing. And then on the buyer’s side obviously, on mortgages.”
According to Zillow Group, in April, the monthly mortgage payment on a typical home jumped to $1,475, assuming a 30-year fixed-rate mortgage with a 20% down payment. This is up 34% since December and 53% from April 2021.
Early signs of a potential cooling of home building have already surfaced, according to The Wall Street Journal. The Commerce Department in late May reported that sales of new homes dropped 16.6% in April from March, at a seasonally adjusted annual rate, to the lowest level since April 2020, when the pandemic halted commerce.
Not only do higher loan rates make borrowing more expensive but they also add another factor to the already increased cost of construction. Lumber prices alone, for example, added about $36,000 to new home prices.