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ArlingtonReal EstateUh-oh: Builder confidence takes a massive tumble

Uh-oh: Builder confidence takes a massive tumble

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In a further sign of a weakening housing market, builder confidence in the market for newly built single-family homes posted its seventh straight monthly decline in July, falling 12 points to 55, according to the National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index (HMI).

This marks the lowest HMI reading since May 2020 and the largest single-month drop in the history of the HMI, except for the 42-point freefall in April 2020 at the onset of the COVID pandemic.

“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,” said NAHB chairman Jerry Konter, a builder and developer from Savannah. “In another sign of a softening market, 13 percent of builders in the HMI survey reported reducing home prices in the past month to bolster sales and/or limit cancellations.”

“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.”

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.

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.
HMI tables can be found at nahb.org/hmi.

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