Builder sentiment fell for the ninth consecutive month in September as elevated interest rates, persistent building material supply chain disruptions, and high home prices continue to impact housing affordability, according to the NAHB.
According to the NAHB/Wells Fargo Housing Market Index (HMI), builder confidence in the market for newly built single-family homes fell three points in September to 46, the lowest level since May 2014, with the exception of the spring of 2020. The index has decreased in each of the first nine months of 2022 after reaching a peak reading of 84 in December 2021. For the second consecutive month, the reading has fallen below the break-even measure of 50.
“Buyer traffic is weak in many markets as more consumers remain on the sidelines due to high mortgage rates and home prices that are putting a new-home purchase out of financial reach for many households,” says NAHB chairman Jerry Konter. “In another indicator of a weakening market, 24% of builders reported reducing home prices, up from 19% last month.”
The HMI, derived from a monthly survey conducted by the NAHB, 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 above 50 indicates that more builders view conditions as good than poor.
All three HMI components posted declines in September, according to the NAHB. Current sales conditions dropped three points to 54, sales expectations in the next six months declined one point to 46, and traffic of prospective buyers fell one point to 31.
“Builder sentiment has declined every month in 2022, and the housing recession shows no signs of abating as builders continue to grapple with elevated construction costs and an aggressive monetary policy from the Federal Reserve that helped push mortgage rates above 6% last week, the highest level since 2008,” says NAHB chief economist Robert Dietz. “In this soft market, more than half of the builders in our survey reported using incentives to bolster sales, including mortgage rate buydowns, free amenities, and price reductions.”
The three-month moving average HMI fell five points to 51 for the Northeast region, decreased seven points to 56 in the South, fell five points to 44 in the Midwest, and dropped 10 points to 41 in the West.
