Builders’ Confidence Dips Four Months in a Row

The index that measures home builders’ attitudes fell below 80 for the first time since last Sept., largely due to supply issues and interest-rate expectations.

WASHINGTON, March 16 – The nation’s homebuilders remain generally optimistic about their business, but the monthly index based on a survey – National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index (HMI) – has inched lower for four months in a row.

NAHB says ongoing lumber and building material constraints, rising construction costs and expectations for higher interest rates negatively affected builder sentiment even though buyer demand remains relatively solid.

In March, confidence for newly built single-family homes moved two points lower to 79 from a downwardly revised reading in February, according to the HMI. It’s the first time 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,” says NAHB Chairman Jerry Konter. “Improving access to lumber, OSB and other materials will help builders increase the supply of badly-needed housing and fight inflation.”

“The March HMI recorded the lowest future sales expectations in the survey since June 2020, adds NAHB Chief Economist Robert Dietz. “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.”

While Dietz says “favorable demographics” support continued demand for new homes, the “impact of elevated inflation and expected higher interest rates suggests caution for the second half of 2022.”

The HMI index gauging current sales conditions fell three points to 86; the gauge measuring sales expectations in the next six months dropped a notable 10 points to 70. The component charting traffic of prospective buyers posted a two-point gain to 67.

Looking at the three-month moving averages for regional HMI scores, the Northeast fell seven points to 69, the Midwest dropped one point to 72 and the South fell three points to 83. The West moved up one point to 90.

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.

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