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ArlingtonReal EstateHome-builder confidence declines further on economic woes

Home-builder confidence declines further on economic woes

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In another sign that a declining housing market has failed to bottom out, builder confidence in the market for newly built single-family homes fell six points in August to 49, marking the first time since May 2020 that the index fell below the key break-even measure of 50, according to the National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index (HMI), released Aug. 16.

“Ongoing growth in construction costs and high mortgage rates continue to weaken market sentiment for single-family home builders,” said NAHB chairman Jerry Konter, a builder and developer from Savannah. “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 with the exception of the spring of 2020 when the pandemic first hit.”

Roughly one-in-five (19%) home builders in the HMI survey reported reducing prices in the past month to increase sales or limit cancellations. The median price reduction was 5 percent for those reporting using such incentives. Meanwhile, 69 percent of builders reported higher interest rates as the reason behind falling housing demand, the top impact cited in the survey.

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 more builders view conditions as good than poor.

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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 on the 0-to-100 scale, 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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