Amid growing affordability challenges in the form of rapidly rising interest rates, double-digit price increases for material costs, and ongoing home price appreciation, builder confidence experienced a steep decline in May, according to the NAHB. Builder confidence in the market for newly built single-family homes fell eight points to 69 in May, according to the NAHB/Wells Fargo Housing Market Index (HMI).
May represents the fifth consecutive month that builder sentiment has declined since peaking at a reading of 84 in December 2021. The index reading of 69 is the lowest since June 2020.
“Housing leads the business cycle, and housing is slowing,” says NAHB chairman Jerry Konter. “The White House is finally getting the message and yesterday released an action plan to address rising housing costs that emphasizes a very important element long-advocated by the NAHB—the need to build more homes to ease the nation’s housing affordability crisis.”
The NAHB/Wells Fargo 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 gauges builder sentiment on rate traffic of prospective buyers. Index readings over 50 indicate more builders view conditions as good than poor.
All three HMI indices posted significant declines in May. The HMI index gauging current sales conditions fell eight points to 78, the gauge measuring sales expectations in the next six months dropped 10 points to 63, and the component tracking traffic of prospective buyers recorded a nine-point decline to 52.
On a regional basis, the three-month moving average HMI reading in the Northeast held steady at 72, while the Midwest dropped seven points to 62, the South declined two points to 80, and the West posted a six-point drop to 83.
“The housing market is facing growing challenges,” says NAHB chief economist Robert Dietz. “Building material costs are up 19% from a year ago, in less than three months mortgage rates have surged to a 12-year high, and, based on current affordability conditions, less than 50% of new and existing home sales are affordable for a typical family. Entry-level and first-time home buyers are especially bearing the brunt of this rapid rise in mortgage rates.”