Builder confidence plummeted in July as increased interest rates and high inflation stalled the housing market by slowing sales and buyer traffic, reports the NAHB.
The NAHB/Wells Fargo Housing Market Index (HMI), measuring builder sentiment in the market for newly built single-family homes, fell 12 points to 55 in July. This marks the seventh straight monthly decline, 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.
“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. “In another sign of a softening market, 13% of builders in the HMI survey reported reducing home prices in the past month to bolster sales and/or limit cancellations.”
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.
“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.”
Looking at the three-month moving regional 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.
“After over two years of an exceptionally strong housing market, we’ve moved into an uncertain phase,” says Ali Wolf, chief economist at Zonda. “Many consumers wholeheartedly would still like to buy a home, but affordability and fears of a recession are causing many to pause. Builders are trying to make sense of the quick downshift in demand and are looking for ways to strategize around what is next.”
