Rising inflation and higher mortgage rates are slowing traffic of prospective home buyers and putting a damper on builder confidence, reports the NAHB.
The NAHB/Wells Fargo Housing Market Index (HMI), measuring builder sentiment in the market for newly built single-family homes, fell two points to 67 in June. This is the sixth straight month that builder sentiment has declined and marks the lowest HMI reading since June 2020.
“Six consecutive monthly declines for the HMI is a clear sign of a slowing housing market in a high-inflation, slow-growth economic environment,” says NAHB chairman Jerry Konter. “The entry-level market has been particularly affected by declines for housing affordability, and builders are adopting a more cautious stance as demand softens with higher mortgage rates. Government officials need to enact policies that will support the supply-side of the housing market as costs continue to climb.”
All three HMI indices posted declines as well. The component charting traffic of prospective buyers fell five points to 48, marking the first time this gauge has fallen below the break-even level of 50 since June 2020. The HMI index gauging current sales conditions fell one point to 77, and the gauge measuring sales expectations in the next six months fell two points to 61.
Looking at the three-month moving regional scores, the Northeast fell one point to 71, the Midwest dropped six points to 56, the South fell two points to 78, and the West posted a nine-point decline to 74.
“The housing market faces both demand-side and supply-side challenges,” says NAHB chief economist Robert Dietz. “Residential construction material costs are up 19% year over year with cost increases for a variety of building inputs, except for lumber, which has experienced recent declines due to a housing slowdown. On the demand-side of the market, the increase for mortgage rates for the first half of 2022 has priced out a significant number of prospective home buyers, as reflected by the decline for the traffic measure of the HMI.”