The 12% drop is the largest NAHB has recorded in its monthly survey of builder attitudes, except for 42 points in April 2020 – the first full month of the pandemic.
WASHINGTON – Builder confidence plunged 12% in July as high inflation and increased interest rates stalled the housing market, slowing sales and buyer traffic.
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) released Monday. It’s the lowest HMI reading since May 2020, and the largest single-month drop in the history of the HMI, except for the 42-point drop in April 2020.
The index gauges builders’ attitudes, and this month’s reading comes closer to 50, the level where builders have a balance between optimism (scores above 50) and pessimism (scores below 50).
“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,” says NAHB Chairman Jerry Konter.
Konter says another trend was noted in July as “13% 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,” says 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.”
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.
Derived from a monthly survey that NAHB has been conducting for more than 35 years, 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.”
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