Elevated inflation and interest rates cause worry among home builders
While demand for newly-built single-family homes remained relatively solid, ongoing lumber shortages and soaring construction costs continued to weigh down builder confidence.
Builder sentiment edged down two points lower to 79 in March, according to the latest National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index (HMI). This is the third month in a row that builder sentiment has dropped and the first time that the HMI has fallen below the 80-point mark since last September.
“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,” said NAHB chief economist Robert Dietz. “While low existing inventory and favorable demographics are supporting demand, the impact of elevated inflation and expected higher interest rates suggests caution for the second half of 2022.”
Read more: What is the impact of the Fed rate hike on home purchase sentiment?
The HMI index measuring current sales conditions dipped three points to 86, and the gauge measuring sales expectations in the next six months posted a whopping 10-point decline to 70. Meanwhile, the component charting traffic of prospective buyers increased two points to 67.
Regionally, the Northeast HMI decreased seven points to 69, the Midwest decreased one point to 72, and the South decreased three points to 83. Builder confidence in the West moved up one point to 90.
“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,” said NAHB chairman Jerry Konter. “We call upon policymakers to act now to ease supply-chain woes. Improving access to lumber, OSB and other materials will help builders increase the supply of badly-needed housing and fight inflation.”
