Homebuilder confidence plummets in the face of bad economic news

In another sign that the housing market is now slowing and taking the economy with it, builder confidence fell sharply in May as mounting affordability challenges in the form of rapidly rising interest rates, Double-digit price increases for materials and home-price appreciation are weighing on buyer demand.

Builder confidence in the market for newly built single-family homes fell eight points to 69 in May, according to the National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index (HMI). It’s the fifth month in a row that builder sentiment has declined and the lowest reading since June 2020.

“Housing is leading the business cycle and housing is slowing down,” said NAHB President Jerry Konter, a Savannah builder and developer. “The White House is finally getting the message and yesterday released an action plan to deal with rising housing costs that emphasizes a very important point long championed by NAHB – the need to build more homes to alleviate the housing affordability crisis in the country.”

Derived from a monthly survey conducted by NAHB for more than 35 years, the NAHB/Wells Fargo HMI rates builders’ perceptions of current single-family home sales and sales expectations for the next six months as “good,” passable” or “poor.”

The survey also asks builders to rate traffic from potential buyers as “high to very high”, “medium” or “low to very low”.

The scores for each component are then used to calculate a seasonally adjusted index where any number above 50 indicates that more builders rate the conditions as good than bad.

All three HMI indices posted significant losses in May. The HMI index measuring current selling conditions fell eight points to 78, the gauge measuring expectations of sales over the next six months fell 10 points to 63 and the component representing traffic from potential buyers posted an increase. down nine points to 52.

Looking at the three-month rolling averages of regional HMI scores, the Northeast was flat at 72 while the Midwest fell seven points to 62, the South fell two points to 80 and the West recorded a down six points to 83.

HMI tables are available on nahb.org/hmi.

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