Homebuilder Confidence Drops to 2007 Levels

The NAHB market index dropped from 55 to 49 in June, the eighth straight month of falls, the worst run since the housing market collapse in 2007. This was the first time since May 2020 that the index dropped below the crucial break-even point of 50.

The score was worse than the most gloomy expectation in the Bloomberg survey of economists and fell below the consensus of an unchanged 55 print.

As continuous supply chain issues and high home prices continued to make it difficult for people to afford housing, all sub-indices fell back to lows last seen during the height of the COVID meltdown and, aside from that, the lowest level since 2014.

Sales conditions currently are down seven points to 57, sales expectations over the next six months are down two points to 47, and buyer traffic is down five points to 32. The prospective buyer traffic index for the group dropped five points to 48, its lowest level since June 2020.

Sales estimates for the next six months fell to their lowest level since May 2020, and the gauge of current sales also sank to a two-year low.

According to the regional HMI scores’ three-month moving averages, the Northeast’s score dropped by nine points to 56, the Midwest’s by three points to 49, the South’s by seven points to 63, and the West’s by eleven points to 51.

The continued rise in building costs and high mortgage rates, according to NAHB Chairman Jerry Konter, a developer and home builder from Savannah, Georgia, continues to harm the market outlook for single-family home builders.

In addition, the August buyer traffic number in our builder survey was 32, the lowest level since April 2014, with the exception of the spring of 2020 when the pandemic initially struck. This is a worrying indication that customers are currently sitting on the sidelines due to increasing housing costs.

A housing crisis has been brought on by the Federal Reserve’s tighter monetary policies and consistently high building costs, according to Robert Dietz, chief economist for the NAHB. “In 2022, the overall number of single-family starts will see a fall, the first such decline since 2011.

Long-term interest rates have steadied, nevertheless, which will offer some stability for the demand side of the market in the upcoming months as indications suggest the rate of inflation is almost at its peak.

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In the previous month, 19% of home builders surveyed by HMI reported lowering prices to boost sales or reduce cancellations. For those who reported employing such incentives, the median price reduction was 5%. The survey’s main impact, the lower house demand, was attributed by 69 percent of builders to increased borrowing rates.

In August, the housing market for single-family houses experienced a downturn in builder confidence as a result of rising costs for both builders and purchasers.

In its ninth consecutive month of fall, the National Association of Home Builders/Wells Fargo Housing Market Index fell 6 points to 49 this month. Anything above 50 is thought to be favorable. Since a brief decline at the beginning of the Covid epidemic, the index has not been in the negative. It had not been negative prior to that since June 2014.

A housing crisis has been brought on by the Federal Reserve’s tighter monetary policies and consistently high building costs, according to Robert Dietz, chief economist for the NAHB.

The three factors that make up the index all decreased: buyer traffic down 5 points to 32, sales expectations for the next six months decreased 2 points to 47, and current sales circumstances decreased 7 points to 57.

In August, approximately 1 in 5 builders reported cutting prices in the previous month to boost sales or reduce cancellations, despite increasing land, labor, and supplies expenses. The average decline that was reported was 5%.

At this time, affordability is the major barrier for buyers. Since the pandemic began, home prices have increased, and the average rate on a 30-year fixed mortgage—which had fallen to historic lows during the pandemic’s early stages—is now nearly double what it was at the beginning of this year. While mortgage rates have decreased from recent highs, home price growth has slowed a bit recently.

“In 2022, the overall number of single-family starts will see a fall, the first such decline since 2011. Long-term interest rates have steadied, though, which will offer some stability for the demand-side of the market in the upcoming months as indications that the rate of inflation is close to peaking rise, according to Dietz.

On a three-month moving average, builder confidence decreased by 9 points in the Northeast to 56 and by 3 points in the Midwest to 49 regionally. It dropped 7 points to 63 in the South and 11 points to 51 in the West, which has the highest property prices.

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