Ongoing lumber and building-material supply-side constraints, rising construction costs and expectations of higher interest rates continue to negatively affect builder sentiment, even as buyer demand remains relatively solid.
Builder confidence in the market for newly built single-family homes moved two points lower to 79 on a 0-to-100 scale in March, according to the National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index (HMI). This is the third straight month that builder sentiment has declined and the first time that the HMI has dipped below the 80-point mark since last September.
“While builders continue to report solid buyer-traffic numbers, helped by historically low existing home inventory and a persistent housing deficit, increasing development and construction costs have taken a toll on builder confidence,” said NAHB chairman Jerry Konter, a builder and developer from Savannah.
“Builders are reporting growing concerns that increasing construction costs (up 20% over the last 12 months) and expected higher interest rates connected to tightening monetary policy will price prospective home buyers out of the market,” said NAHB chief economist Robert Dietz. “While low existing inventory and favorable demographics are supporting demand, the impact of elevated inflation and expected higher interest rates suggests caution for the second half of 2022.”
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 than not view conditions as favorable.
The HMI index gauging current sales conditions fell three points to 86 and the gauge measuring sales expectations in the next six months dropped a whopping 10 points to 70. The component charting traffic of prospective buyers posted a two-point gain to 67.