NAHB’s monthly survey of builders’ attitudes turned slightly negative this month. It’s the first negative reading since May 2020, the first month of pandemic lockdowns.
WASHINGTON – Builder confidence in August fell for the eighth month in a row. According to the builders, higher interest rates, ongoing supply chain problems and high home prices continue to exacerbate housing affordability challenges.
The National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index (HMI) is based on a score of 100 – any number above 50 indicates more optimism than pessimism, while any number below 50 suggests more negative outlooks.
In August, the index fell to 49 from 55 in July, the first time since May 2020 – the first full month of lockdowns during the pandemic – that the index fell below the break-even measure of 50.
“Ongoing growth in construction costs and high mortgage rates continue to weaken market sentiment for single-family home builders,” says NAHB Chairman Jerry Konter. “And in a troubling sign that consumers are now sitting on the sidelines due to higher housing costs, the August buyer traffic number in our builder survey was 32, the lowest level since April 2014,” except for spring 2020.
“Tighter monetary policy from the Federal Reserve and persistently elevated construction costs have brought on a housing recession,” says NAHB Chief Economist Robert Dietz. “The total volume of single-family starts will post a decline in 2022, the first such decrease since 2011.
“However, as signs grow that the rate of inflation is near peaking, long-term interest rates have stabilized, which will provide some stability for the demand-side of the market in the coming months.”
Roughly one-in-five (19%) home builders in the HMI survey said they reduced prices in the past month to increase sales or limit cancellations. The median price reduction was 5% for those reporting using such incentives. Meanwhile, 69% of builders reported higher interest rates as the reason behind falling housing demand, the top impact cited in the survey.
All three HMI components posted declines in August, and each fell to their lowest level since May 2020. Current sales conditions dropped seven points to 57, sales expectations in the next six months declined two points to 47 and traffic of prospective buyers fell five points to 32.
Looking at the three-month moving averages for regional HMI scores, the Northeast fell nine points to 56, the Midwest dropped three points to 49, the South fell seven points to 63 and the West posted an 11-point decline to 51.
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Author: kerrys