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NAHB warns of "troubling" signs for housing

Builder confidence falls for a sixth straight month to lowest reading since 2020.
6/15/2022
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Economic troubles are catching up with home builders, including rising inflation and higher mortgage rates.

As a result, the traffic of prospective home buyers is slowing dramatically and builder sentiment continues to wilt. The National Association of Home Builders (NAHB) describes the current environment as “a troubling sign for the housing market.”

Released this morning, the latest NAHB/Wells Fargo Housing Market Index (HMI) reveals that builder confidence in the market for newly-built single-family homes fell two points in June to a reading of 67.

The reading marks the sixth straight monthly decline and the lowest 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, a builder and developer from Savannah, Ga. “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.”

Konter also said, “Government officials need to enact policies that will support the supply-side of the housing market as costs continue to climb.”

The 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 are 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 declines in June. The component charting traffic of prospective buyers fell five points to 48, marking the first time this gauge has fallen below the breakeven level of 50 since June 2020. The HMI index gauging current sales conditions fell one point to 77 and the gauge measuring sales expectations in the next six months fell two points to 61.

“The housing market faces both demand-side and supply-side challenges,” said NAHB Chief Economist Robert Dietz. “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.”

Looking at the three-month moving averages for regional HMI scores, the Northeast fell one point to 71, the Midwest dropped six points to 56, the South fell two points to 78 and the West posted a nine-point decline to 74.

“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,” Dietz noted.

HMI tables can be found at nahb.org/hmi

The latest housing starts and permit data will be released tomorrow by the U.S. Census Bureau and the U.S. Department of Housing and Urban Development.

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