Builder confidence in the market for newly built single-family homes posted its 12th straight monthly decline in December, dropping two points to 31 in December, according to the National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index (HMI).
This is the lowest confidence reading since mid-2012, with the exception of the onset of the pandemic in the spring of 2020.
“In this high-inflation, high-mortgage-rate environment, builders are struggling to keep housing affordable for home buyers,” said NAHB chairman Jerry Konter, a builder and developer from Savannah.
“Our latest survey shows 62 percent of builders are using incentives to bolster sales, including providing mortgage-rate buy-downs, paying points for buyers and offering price reductions,” Konter said. “But with construction costs up more than 30 percent since inflation began to take off at the beginning of the year, there is little room for builders to cut prices.”
Derived from a monthly survey that NAHB has been conducting for more than 35 years, the 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.
The HMI index gauging current sales conditions fell three points to 36 and traffic of prospective buyers held steady at 20.
The component charting sales expectations in the next six months increased four points to 35.
Looking at the three-month moving averages for regional HMI scores, the Northeast fell five points to 37, the Midwest dropped four points to 34, the South fell six points to 36 and the West posted a three-point decline to 26.
“The silver lining in this HMI report is that it is the smallest drop in the index in the past six months, indicating that we are possibly nearing the bottom of the cycle for builder sentiment,” remarked NAHB chief economist Robert Dietz.