Expert Says Housing Market Is in a Correction

Builder confidence recently dropped to its lowest level in three years, single-family starts fell more than 13 percent over the previous month, and permits issued were down almost two percent.

Following this release of housing data in December 2018, CEO of John Burns Real Estate Consulting John Burns tells CNBC, "I definitely think we're in a correction." Based on his firm's own data, "Sales were down 19 percent year over year." Rising mortgage rates and home prices continuing to appreciate are primarily causing the correction, says Burns, adding that only half of all Americans can afford a $230,000 mortgage, and builders in the right locations cannot build at that price point. By contrast, 11 out of the top 19 builders say their average sales price is more than $400,000.

"The rise in mortgage rates has really been a double whammy for them," Burns said. "A lot of the focus has been on the first-time buyer who now can afford 7 percent less than they could at the beginning of the year just due to mortgage rates and home prices even worse than that."

Builders cannot hit the lower prices because of higher costs for land, labor and materials. While they might be able to build cheaper homes farther outside major metropolitan areas, doing so is risky, given that demand there is so weak.

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