Builder Confidence Plunges on Rising Interest Rates, Growing Affordability Woes

2022-05-17T09:21:47-05:00

By Robert Dietz on May 17, 2022 • In a sign that the housing market is now slowing, builder confidence took a steep drop in May as growing affordability challenges in the form of rapidly rising interest rates, double-digit price increases for material costs and ongoing home price appreciation are taking a toll on buyer demand. Builder confidence in the market for newly built single-family homes fell eight points to 69 in May, according to the National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index (HMI). This is the fifth straight month that builder sentiment has declined and the lowest reading since June 2020. Housing is the business cycle, and the sector is particularly sensitive to changes for interest rates. And the housing market is facing growing challenges. 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. Derived from a monthly survey that NAHB has been conducting for more than 35 years, 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 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 over 50 indicates that more builders view conditions as good than poor. All three HMI indices posted major losses 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 charting traffic of prospective buyers posted a nine-point decline to 52. Looking at the three-month moving averages for regional HMI scores, the Northeast held steady at 72 while the Midwest dropped seven points to 62, the South fell two points to 80 and the West posted a six-point decline to 83. The HMI tables can be found at nahb.org/hmi. Related ‹ Multifamily Permits Strong At The End of First Quarter of 2022Tags: economics, hmi, home building, housing

Builder Confidence Plunges on Rising Interest Rates, Growing Affordability Woes2022-05-17T09:21:47-05:00

Housing Market at Inflection Point as Builder Confidence Continues to Fall

2022-04-18T09:19:39-05:00

By Robert Dietz on April 18, 2022 • Rapidly rising interest rates combined with ongoing home price increases and higher construction costs continue to take a toll on builder confidence and housing affordability. Builder confidence in the market for newly built single-family homes moved two points lower to 77 in April, according to the National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index (HMI). This is the fourth straight month that builder sentiment has declined. Despite low existing inventory, builders report sales traffic and current sales traffic and current sales conditions have declined to their lowest points since last summer as a sharp jump in mortgage rates and persistent supply chain disruptions continue to unsettle the housing market. The housing market faces an inflection point as an unexpectedly quick rise in interest rates, rising home prices and escalating material costs have significantly decreased housing affordability conditions, particularly in the crucial entry-level market. Mortgage interest rates have jumped more than 1.9 percentage points since the start of the year and currently stand at 5%, the highest level in more than a decade. Derived from a monthly survey that NAHB has been conducting for more than 35 years, 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 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 over 50 indicates that more builders view conditions as good than poor. The HMI index gauging current sales conditions fell two points to 85 and the component charting traffic of prospective buyers posted a six-point decline to 60. The gauge measuring sales expectations in the next six months increased three points to 73 following a 10-point drop in March. Looking at the three-month moving averages for regional HMI scores, the Northeast posted a one-point gain to 72 while the Midwest dropped three points to 69, the South fell two points to 82 and the West edged one-point lower to 89. The HMI tables can be found at nahb.org/hmi. Related ‹ Slight Pick-Up in Single-Family Permits February 2022Tags: economics, hmi, home building, housing

Housing Market at Inflection Point as Builder Confidence Continues to Fall2022-04-18T09:19:39-05:00

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