Homebuilders across the country are seeing sharply rising mortgage rates. This is causing new construction to become more expensive. 

Builder confidence in the market for new single-family homes fell 2 points to 77 in April, according to the National Association of Home Builders/Wells Fargo Housing Market Index. Positive sentiment is defined as any reading that exceeds 50. However, this reading represents the fourth consecutive month of declining index readings, having fallen to 83 in April 2021.

The current sales situation fell by 2 points, to 85. After a 10 point drop in March, buyer traffic fell 6 points to 60. Sales expectations for the following six months rose 3 points to 72.

NAHB Chairman Jerry Konter from Savannah, Georgia, said that despite low inventories, builders reported sales traffic. “A sharp jump in mortgage interest rates and continued supply chain disruptions have caused the market to remain unstable,” Konter added. Konter is a developer and builder.

According to Mortgage News Daily, the average interest rate for a 30-year fixed mortgage was 3.90% as of March 1, and now it is at 5.15%. It is the highest rate recorded in over a decade. This rate follows loosely the U.S. Treasury 10-year Treasury yield, which is on the rise but also affected by the Federal Reserve’s withdrawal from the mortgage-backed bonds market.

The rising mortgage rates only make it more expensive to buy new or existing properties. Median price of newly constructed homes in February increased by more than 10% compared to the prior year.

Robert Dietz, Chief Economist at NAHB, stated that the housing market is now facing an “inflection point” as a sudden rise in interest rates and rising home prices have dramatically reduced housing affordability, especially in the critical entry market.

The Northeast saw a 1 point increase in builder sentiment on a 3 month moving average to read 72. The Midwest saw a drop of 3 points, while the South experienced a decline 2 points to 80. In the West, it was 1 point lower at 89.