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Homebuilder cautions that real estate market is succumbing to its top danger

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In a recent interview, the CEO of the National Association of Home Builders, Jim Tobin, highlighted the current challenges facing the American real estate market. Tobin pointed to inflation as the main driver behind the slowdown in home purchases, with potential buyers hesitant to commit to high mortgage rates amidst rising costs. This hesitation has contributed to a decrease in the housing market index, with a rating of 43 in June being the lowest since the start of 2024.

According to a report from Freddie Mac, most homeowners with low mortgage rates are choosing to stay put in their current homes, with the exception of millennials. The interest rate on a 30-year fixed-rate mortgage currently sits at just over 6.7%, further adding to the financial burden for potential homebuyers. Housing costs were identified as the major driver of inflation, with rent costs rising 0.4% in the last month alone.

Tobin expressed concern over the impact of rising rents on household budgets, particularly as shelter inflation continues to exceed 5%. He also highlighted the challenges faced by home builders, with construction financing carrying interest rates as high as 12 to 13%. Local regulatory costs, delays, and federal regulatory burdens were cited as additional obstacles hindering the industry’s growth.

In discussing the upcoming presidential election, Tobin noted that a lower regulatory environment during President Trump’s administration led to increased economic output in the housing segment. He suggested that reelecting President Trump could result in similar benefits for the real estate market. However, he also acknowledged President Biden’s efforts to implement pro-building policies aimed at increasing housing supply, though he expressed confusion over the administration’s mixed messaging on the issue.

Overall, the American real estate market is facing significant challenges due to inflation, high mortgage rates, and regulatory burdens. As potential buyers remain cautious and existing homeowners opt to stay put, the industry is grappling with a slowdown in activity. The outcome of the upcoming presidential election could further shape the regulatory environment, with implications for the future growth and stability of the housing market.

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