NAHB provides insight into what's happening to housing market optimism
It’s safe to say that the nation’s homebuilders are not as confident as they were six months ago, as record-high inflation and rising mortgage rates put an end to years of strong builder sentiment.
In an alarming sign for the housing market, builder confidence in the market for newly constructed single-family homes fell for the sixth straight month to a reading of 67 points. According to the National Association of Home Builders, this is the lowest Housing Market Index (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,” said 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.”
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All three HMI indices experienced declines in June. The component charting traffic of prospective buyers plunged five points to 48 – the first time this component has fallen below the breakeven level of 50 since June 2020. The HMI index measuring current sales conditions dipped one point to 77, and the gauge measuring sales expectations in the next six months dropped two points to 61.
“The housing market faces both demand-side and supply-side challenges,” NAHB chief economist Robert Dietz explained. “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.”
“Government officials need to enact policies that will support the supply-side of the housing market as costs continue to climb,” Konter said.
