During what’s the peak of home building season in the US, builders aren’t feeling optimistic. In fact, according to the National Association of Home Builders/Wells Fargo Housing Market Index, builder confidence in the market for newly built single-family homes posted its seventh straight monthly decline in July, falling 12 points to 55.
It’s one of the biggest single month drops in the 35-year history of the HMI, and the lowest HMI reading since May 2020. The HMI dropped 42 points in April 2020. High inflation and rising interest rates are dramatically slowing sales and buyer traffic, which stalls the housing market.
NAHB/Wells Fargo Housing Market Index – July 2022
NAHB Chairman Jerry Konter cited the same issues which have been challenging the builders’ market for many months. “Production bottlenecks, rising home building costs and high inflation are causing many builders to halt construction because the cost of land, construction and financing exceeds the market value of the home,” Konter said. “In another sign of a softening market, 13% of builders in the HMI survey reported reducing home prices in the past month to bolster sales and/or limit cancellations.”
Higher Prices Are Pricing Many Out of the Market
“Affordability is the greatest challenge facing the housing market,” said NAHB Chief Economist Robert Dietz. “Significant segments of the home buying population are priced out of the market. Policymakers must address supply-side issues to help builders produce more affordable housing.”
Derived from a monthly survey that NAHB has been conducting for more than 35 years, the NAHB/Wells Fargo HMI gauges builder perceptions of current single-family home sales and sales expectations for the next six months as “good,” “fair” or “poor.” The survey also asks builders to rate traffic of prospective buyers as “high to very high,” “average” or “low to very low.” Scores for each component are then used to calculate a seasonally adjusted index where any number over 50 indicates that more builders view conditions as good than poor.
All three HMI components posted declines in July: Current sales conditions dropped 12 points to 64, sales expectations in the next six months declined 11 points to 50 and traffic of prospective buyers fell 11 points to 37.
Looking at the three-month moving averages for regional HMI scores, the Northeast fell six points to 65, the Midwest dropped four points to 52, the South fell eight points to 70 and the West posted a 12-point decline to 62.
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