Decline in builder confidence may be sign of slowing housing market
Builder confidence marked its sixth-straight month of declines in June as builders felt the effects the economic headwinds currently rocking the sector.
Builder confidence fell 2 points in June to 67, marking the lowest reading since June 2020 as builders contend with rising inflation and higher mortgage rates, according to the National Association of Home Builders/Wells Fargo Housing Market Index. In May builder confidence dropped 8 points.
“Six consecutive monthly declines for the HMI is a clear sign of a slowing housing market in a high inflation, slow growth economic environment,” NAHB Chairman Jerry Konter said in a statement. “The entry-level market has been particularly affected by declines for housing affordability and builders are adopting a more cautious stance as demand softens with higher mortgage rates. Government officials need to enact policies that will support the supply-side of the housing market as costs continue to climb.”
Homebuilders are faced with a perfect storm of increasing construction costs amid worsening inflation and decreasing demand for homes amid sky-high mortgage rates, NAHB experts said.
“The housing market faces both demand-side and supply-side challenges,” NAHB Chief Economist Robert Dietz said in a statement. “Residential construction material costs are up 19% year-over-year with cost increases for a variety of building inputs, except for lumber, which has experienced recent declines due to a housing slowdown. On the demand-side of the market, the increase for mortgage rates for the first half of 2022 has priced out a significant number of prospective home buyers, as reflected by the decline for the traffic measure of the HMI.”
The index is derived from a survey of home builders who are asked to rate sales and sale expectations of single-family homes as “good” “fair” or “poor” along with their evaluation of traffic of potential buyers which is then calculated into a seasonally adjusted average with any score above 50 considered good.
According to the NAHB, all three categories posted declines, with the index gauging traffic of prospective buyers dropping five points to 48, marking the first time conditions for buyer traffic have not been considered good since June 2020. The index gauging current sales conditions fell one point to 77 and the index charting sales expectations for the next six months fell two points to 61.
Regionally, builder sentiment in the Northeast fell one point to 71, the Midwest fell six points to 56, while the South dropped two points to 78, and the West plummeted nine points to 74.